Question:
Claire wants to take out a small personal loan to renovate her kitchen. She borrows $3,000. Her loan has an annual compound interest rate of 15%. The loan compounds once each year. If Claire does not make any payments, how much will she owe after ten years?
A. $12,136.67
C. $3,481.24
C. $6,090.90
D. $3,232.74
Answer:
A = P (1 + r/n) ^(n*t)
Where:
A = future value plus interest
P = principal amount
r = annual interest rate
n = number of times the interest is compounded per year
t = number of years
P = $3,000
r = 0.15
n = 1
t = 10 years
A = $3,000 * (1 + 0.15/1) ^ (1*10)
A = $3,000 * (1.15) ^10
A = $9,732.74
After 10 years, Claire will owe $9,732.74 if she defaults on payment. By considering the principal and interest, she will owe a total of $12,136.67.
Answer: A. $12,136.67
