Calculate the final loan amount of $500 credit card loan with a 16% compound interest rate, compounded monthly for one year term
A) $580.00
B) $85.14
C) $583.20
D) $585.14
To calculate the final loan amount, we can use the formula for compound interest:
A = P(1 + r/n)^(nt)
Where:
A = the final loan amount
P = the initial loan amount
r = the annual interest rate (as a decimal)
n = the number of times the interest is compounded per year
t = the number of years
In this case, the initial loan amount is $500, the compound interest rate is 16% (or 0.16 as a decimal), the loan is compounded monthly (n = 12), and the loan term is one year (t = 1).
Plugging in the values into the formula:
A = 500(1 + 0.16/12)^(12*1)
A = 500(1 + 0.01333)^12
A = 500(1.01333)^12
A = 500(1.172054625)
A = $586.03 (rounded to two decimal places)
Therefore, the final loan amount is $586.03.
None of the answer choices provided match the correct result.