You are borrowing money today at 8.48 percent,compounded annually.You will repay the principal plus all the interest in one lump sum of $12,800 two years from today.How much are you borrowing?

Question

Quizplus · Accepted Answer

We can use the formula for compound interest:

A = P(1 + r/n)^(nt)

Where:
A = the total amount at the end of the time period
P = the principal (amount borrowed)
r = the annual interest rate as a decimal
n = the number of times interest is compounded per year (in this case, once a year)
t = the time in years

We are given:
r = 8.48% = 0.0848
n = 1
t = 2
A = $12,800

Substituting these values into the formula:

$12,800 = P(1 + 0.0848/1)^(1*2)

Simplifying:

$12,800 = P(1.0848)^2

$12,800 = P(1.18099664)

P = $10,877.04

Therefore, the best choice is C.

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