Edgar accumulated $5,000 in credit card debt. If the interest rate is 20% per year and he does not make any payments for 2 years, how much will he owe on this debt in 2 years by compounding continuously? Round to the nearest cent.

Loan amount due after 2 years =$7,387.28

Explanation:

The amount due on the loan would be equal to the total accrued interest plus the accumulated amount amount.

Note that, since Edgar did not pay any amount off the loan in the course of the 2 years, the interest due per quarter would be equal to the quarterly  interest rate multiplied by  the unpaid balance till date.

To determine the amount due, we would compound $5,000 at a quarterly interest rate of for 8 quarters. The formula below would suffice

Loan amount due = loan balance × (1+r)^(n)

Quarterly interest rate -20%/4 =5%, number of quarters - 2× 4 =8, loan balance - 5,000

Loan amount due = 5,000 × (1.05)^(8)

                             =  7,387.28

Loan amount due after 2 years =$7,387.28

Step-by-step explanation:

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