A freshman college student borrows $10,000 today at 9% interest compounded annually to buy a used car.

A freshman college student borrows $10,000 today at 9% interest compounded annually to buy a used car. Four years later the student receives a graduation gift of $3,000 and pays this gift toward the loan balance. Approximately how much money will the student still owe after the $3,000 payment?

Expert Solution

We use the formula:
A=P(1+r/100)^n
where
A=future value
P=present value
r=rate of interest
n=time period.

Value of loan before payment of $3000=10,000*(1.09)^4

=10,000*1.41158161

=$14115.82(Approx)

Hence money that the student still owes after the $3,000 payment=14115.82-3000

=$11,115.82(Approx)

jeff jeffy answered 2 years ago

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