Pearson eText for Business Math -- Instant Access (Pearson+)
Pearson eText for Business Math -- Instant Access (Pearson+)
11th Edition
ISBN: 9780137518883
Author: Cheryl Cleaves, Margie Hobbs
Publisher: PEARSON+
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Chapter 13, Problem 1ES
To determine

To calculate: The compound interest paid on the loan of value $1000 at 8% compounded annually for two years.

Expert Solution & Answer
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Answer to Problem 1ES

Solution:

The compound interest on the loan is $166.4_.

Explanation of Solution

Given Information:

Loan of value $1000 at 8% compounded annually for two years.

Formula used:

Steps to find the future value using the simple interest formula:

1. Find the periodic interest rate using the formula

Period Interest rate=annual interest ratenumber of interest periods per year

2. Then multiply the original principal by the sum of 1 and the periodic interest rate as

First end-of-period principal=origianl principal×(1+periodic interest rate) or A=P(1+R)

3. Then for each remaining period find the next end of period principal for that multiply the previous period principal by the sum of 1 and the periodic interest rate as

End-of-period principal=previous end-of-period principal×(1+periodic interest rate)

4. Then the last end of period principal will be the future value as

Futur value or Compound Amount=last end-of-period principal

Determine the compound interest by subtracting original value from future value as

Compund Interest=Future ValueOriginal Principal

Calculation:

Consider the loan of value $1000 at 8% compounded annually for two years.

Because the loan is compounded annually, there is one interest period per year. So, the period interest rate is 8% or 0.08. There are 2 interest periods one for each of the two years.

Original Principal Amount is $1000

Therefore,

First end-of-period principal=origianl principal×(1+periodic interest rate)=$1000(1+.08)=$1000(1.08)=$1080

Now

End-of-period principal=previous end-of-period principal×(1+periodic interest rate)=$1080(1+0.08)=$1080(1.08)=$1166.4

And

Futur value or Compound Amount=last end-of-period principal=$1166.4

And the compound interest amount is,

Compund Interest=Future ValueOriginal Principal=$1166.4-$1000=$166.4

Hence the compound interest on the loan is $166.4.

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Chapter 13 Solutions

Pearson eText for Business Math -- Instant Access (Pearson+)

Ch. 13.1 - Prob. 3-3SCCh. 13.1 - Prob. 3-4SCCh. 13.1 - Prob. 4-1SCCh. 13.1 - Prob. 4-2SCCh. 13.1 - Prob. 4-3SCCh. 13.1 - Prob. 4-4SCCh. 13.1 - Prob. 5-1SCCh. 13.1 - Prob. 5-2SCCh. 13.1 - Prob. 5-3SCCh. 13.1 - Prob. 5-4SCCh. 13.1 - Prob. 1SECh. 13.1 - Prob. 2SECh. 13.1 - Prob. 3SECh. 13.1 - Prob. 4SECh. 13.1 - Prob. 5SECh. 13.1 - Prob. 6SECh. 13.1 - Prob. 7SECh. 13.1 - Prob. 8SECh. 13.1 - Prob. 9SECh. 13.1 - Prob. 10SECh. 13.1 - Prob. 11SECh. 13.1 - Prob. 12SECh. 13.1 - Prob. 13SECh. 13.1 - Prob. 14SECh. 13.1 - Prob. 15SECh. 13.1 - Prob. 16SECh. 13.1 - Prob. 17SECh. 13.1 - Prob. 18SECh. 13.1 - Prob. 19SECh. 13.1 - Prob. 20SECh. 13.1 - Prob. 21SECh. 13.1 - Prob. 22SECh. 13.1 - Prob. 23SECh. 13.1 - Prob. 24SECh. 13.2 - Prob. 1-1SCCh. 13.2 - Prob. 1-2SCCh. 13.2 - Prob. 1-3SCCh. 13.2 - Prob. 1-4SCCh. 13.2 - Prob. 2-1SCCh. 13.2 - Prob. 2-2SCCh. 13.2 - Prob. 2-3SCCh. 13.2 - Prob. 2-4SCCh. 13.2 - Prob. 3-1SCCh. 13.2 - Prob. 3-2SCCh. 13.2 - Prob. 3-3SCCh. 13.2 - Prob. 3-4SCCh. 13.2 - Prob. 1SECh. 13.2 - Prob. 2SECh. 13.2 - Prob. 3SECh. 13.2 - Prob. 4SECh. 13.2 - Prob. 5SECh. 13.2 - Prob. 6SECh. 13.2 - Prob. 7SECh. 13.2 - Prob. 8SECh. 13.2 - Prob. 9SECh. 13.2 - Prob. 10SECh. 13.2 - Prob. 11SECh. 13.2 - Prob. 12SECh. 13 - Prob. 1ESCh. 13 - Prob. 2ESCh. 13 - Prob. 3ESCh. 13 - Prob. 4ESCh. 13 - Prob. 5ESCh. 13 - Prob. 6ESCh. 13 - Prob. 7ESCh. 13 - Prob. 8ESCh. 13 - Prob. 9ESCh. 13 - Prob. 10ESCh. 13 - Prob. 11ESCh. 13 - Prob. 12ESCh. 13 - Prob. 13ESCh. 13 - Prob. 14ESCh. 13 - Prob. 15ESCh. 13 - Prob. 16ESCh. 13 - Prob. 17ESCh. 13 - Prob. 18ESCh. 13 - Prob. 19ESCh. 13 - Prob. 20ESCh. 13 - Prob. 21ESCh. 13 - Prob. 22ESCh. 13 - Prob. 23ESCh. 13 - Prob. 24ESCh. 13 - Prob. 25ESCh. 13 - Prob. 26ESCh. 13 - Prob. 27ESCh. 13 - Prob. 28ESCh. 13 - Prob. 29ESCh. 13 - Prob. 30ESCh. 13 - Prob. 31ESCh. 13 - Prob. 32ESCh. 13 - Prob. 33ESCh. 13 - Prob. 34ESCh. 13 - Prob. 35ESCh. 13 - Prob. 36ESCh. 13 - Prob. 37ESCh. 13 - Prob. 38ESCh. 13 - Prob. 39ESCh. 13 - Prob. 40ESCh. 13 - Prob. 41ESCh. 13 - Prob. 42ESCh. 13 - Prob. 43ESCh. 13 - Prob. 44ESCh. 13 - Prob. 45ESCh. 13 - Prob. 46ESCh. 13 - Prob. 47ESCh. 13 - Prob. 48ESCh. 13 - Prob. 49ESCh. 13 - Prob. 50ESCh. 13 - Prob. 51ESCh. 13 - Prob. 52ESCh. 13 - Prob. 53ESCh. 13 - Prob. 1PTCh. 13 - Prob. 2PTCh. 13 - Prob. 3PTCh. 13 - Prob. 4PTCh. 13 - Prob. 5PTCh. 13 - Prob. 6PTCh. 13 - Prob. 7PTCh. 13 - Prob. 8PTCh. 13 - Prob. 9PTCh. 13 - Prob. 10PTCh. 13 - Prob. 11PTCh. 13 - Prob. 12PTCh. 13 - Prob. 13PTCh. 13 - Prob. 14PTCh. 13 - Prob. 15PTCh. 13 - Prob. 16PTCh. 13 - Prob. 17PTCh. 13 - Prob. 18PTCh. 13 - Prob. 19PTCh. 13 - Prob. 20PTCh. 13 - Prob. 1CTCh. 13 - Prob. 2CTCh. 13 - Prob. 3CTCh. 13 - Prob. 4CTCh. 13 - Prob. 5CTCh. 13 - Prob. 6CTCh. 13 - Prob. 7CTCh. 13 - Prob. 8CTCh. 13 - Prob. 9CTCh. 13 - Prob. 2CPCh. 13 - Prob. 3CPCh. 13 - Prob. 1CS1Ch. 13 - Prob. 2CS1Ch. 13 - Prob. 3CS1Ch. 13 - Prob. 4CS1Ch. 13 - Prob. 1CS2Ch. 13 - Prob. 2CS2Ch. 13 - Prob. 3CS2Ch. 13 - Prob. 4CS2Ch. 13 - Prob. 1CS3Ch. 13 - Prob. 2CS3Ch. 13 - Prob. 3CS3Ch. 13 - Prob. 4CS3Ch. 13 - Prob. 5CS3
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