11. Mr Lee bought a second hand car for $25 480 and made a down payment of
$10 000. He arranged to pay the balance at
the end of two years with compound interest
at 4.75%. How much did he pay at the
stipulated time?

Answer :

Depends on the rate compound interest is accrued. See answers.

Step-by-step explanation:

We need the compound interest formula which is:

A=  final amount

P=  initial principal balance

r=  interest rate

n=  number of times interest applied per time period

t=  number of time periods elapsed

It doesn't say how frequently the interest is compounded, so we will do monthly, quarterly, and yearly.

MONTHLY

So we know the car costs $25,480 and he made a down payment of $10,000. By subtracting the down payment from the purchase price we find the loan amount.

$25,480 - $10,000 = $15,480

P = 15,480

r = 4.75% = .0475

n = 12  (12 months in a year)

t = 2  

Plug everything into the compound interest formula.

Mr. Lee paid $17,016.14 when the bill came due at 2 years with interest compounded monthly.

QUARTERLY

P = 15,480

r = 4.75% = .0475

n = 4  (4 quarters in a year)

t = 2  

Mr. Lee paid $17,013.20 when the bill came due at 2 years with interest compounded quarterly.

YEARLY

P = 15,480

r = 4.75% = .0475

n = 1  

t = 2  

Mr. Lee paid $16,985.53  when the bill came due at 2 years with interest compounded yearly.