Question

suppose melissa borrows $8500 at an interest rate of 3% 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. $\square$ (b) find the amount owed at the end of 2 years. $\square$

Explanation:

Step1: Recall compound interest formula

The formula for compound amount is $A = P(1 + r)^t$, where $P$ is principal, $r$ is annual interest rate, $t$ is time in years.
Here, $P = 8500$, $r = 0.03$.

Step2: Calculate amount after 1 year

Substitute $t=1$ into the formula:
$A = 8500(1 + 0.03)^1 = 8500 \times 1.03$
$A = 8755$

Step3: Calculate amount after 2 years

Substitute $t=2$ into the formula:
$A = 8500(1 + 0.03)^2 = 8500 \times (1.03)^2$
$A = 8500 \times 1.0609 = 9017.65$

Answer:

(a) $\$8755$
(b) $\$9017.65$