Suppose that a loan of $7500 is given at an interest rate of 7% compounded each year. Assume that no payments are made on the loan.
Follow the instructions below. Do not do any rounding.
(a) Find the amount owed at the end of 1 year.
(b) Find the amount owed at the end of 2 years.

(a) $8025

(b) $8586.75

General Formulas and Concepts:

Pre-Algebra

Order of Operations: BPEMDAS

Algebra I

Compounded Interest Rate Formula: A = P(1 + r/n)ⁿˣ

A is final amountP is principal (initial) amountr is raten is compounded ratex is time (in years)

Step-by-step explanation:

Step 1: Define

P = 7500

r = 0.07

n = 1

Step 2: Write general formula

Substitute:          A = 7500(1 + 0.07/1)¹ˣEvaluate:            A = 7500(1.07)ˣ

Step 3: Solve

x = 1 year

Substitute:                    A = 7500(1.07)¹Evaluate:                       A = 7500(1.07)Multiply:                        A = 8025

x = 2 years

Substitute:                    A = 7500(1.07)²Evaluate:                       A = 7500(1.1449)Multiply:                        A = 8586.75

And we have our final answers!

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