A freshman college student borrows $10,000 today at 12% interest compounded annually to buy a used...

A freshman college student borrows $10,000 today at 12% 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

Amount due after 4 years= P*(1+r)^n

Where

P= Principal (loan amount) (given as $10,000)

r= Interest rate (given as 12%)

n= Period (4 years)

Plugging the inputs,

Amount due after 4 years= $10,000*(1+12%)^4 = $15,735.19

Amount paid out of graduation gift= $3,000

Balance amount the student owe= $15,735.19- $3,000 = $12,735.19

jeff jeffy answered 2 years ago

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