If the interest rate is 5 percent per year and you borrow $100 for two years, at the end of the second year you must pay back

Question

Quizplus · Accepted Answer

To calculate the amount to be paid after 2 years, we need to use compound interest formula:

A = P (1 + r/n)^(nt)
Where
A = final amount
P = initial principal = $100
r = annual interest rate = 5% = 0.05
n = number of times the interest is compounded per year = 1 (annually)
t = time in years = 2

A = 100 (1 + 0.05/1)^(1×2)
A = 100 (1 + 0.05)^2
A = 100 × 1.1025
A = $110.25

Therefore, the amount to be paid back at the end of the second year is $106.09 (rounded to two decimal places).

If the Interest Rate Is 5 Percent Per Year and You