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A bank loaned Sarah Smith $2000 , 5 years compounded annually at 9%. How much interest was Sarah required to pay on the loan?

I understand parts of how to determine simple interest and compounding interest. But I tend to get confused on how when it comes to determine the interest periods.

Respuesta :

Aliwohaish12
The difference is
To find the compound interest you should calculate the future value and then subtract the present value from the future value to get the amount of interest.
The formula to find the future value of a compound interest is
A=p (1+r)^t
A future value?
P present value 2000
R interest rate 0.09
T time 5years
A= 2,000×(1+0.09)^(5)
A=3,077.25
So the amount of interest
I=A-p
I=3,077.25−2,000
I=1,077.25



To find the amount of simple interest The formula is
I=prt
I interest earned
P principle
R interest rate
T time
Or you can find the simple interest by calculating the future value using the formula of A=p (1+rt) then subtract the present value from the result to get the interest.

Hope it helps

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