ProblemSet3: Problem 5 Previous Problem List Ne (2 points) The compound interest

Question

ProblemSet3: Problem 5 Previous Problem List Ne (2 points) The compound interest formula is F- P(1 +i)" where F is the total amount due, P is the initial cost or amount of money, i is the interest rate, and n is the number of periods interest is computed. A student purchases a $1400 laptop computer for school. The deal does not require payment until 2.5 years later. If interest is computed monthly how much does the student have to pay at the end of 2.5 years? The monthly interest rate is 1.9 percent. If the cost of the laptop is the same, how much does the student owe if the interest rate is 22.8 percent computed annually? Note: You can earn partial credit on this problem. You have attempted this problem 0 times. You have unlimited attempts remaining.

Explanation / Answer

Part A -

Monthly interest = 1.9 percent

So, annual interest = 1.9 x 12 = 22.8 percent

time, t = 2.5 year

principal amount, p = 1400 dollar

Amount to be paid after 2.5 years = p + (p x t x i)/100

= 1400 + (1400 x 2.5 x 22.8) / 100 = 1400 + 798 = 2198 dollar.

Part B -

Amount to be paid after 2.5 year with compound interest -

F = P*(1+i)^n = 1400*(1 + 0.228)^2.5 = 1400 * (1.228)^2.5 = 2339 dollar

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