Suppose that you barrow 10,000 AED at 1% compounded interest, the the total amount to pay in five years is O 10,000 AED 10,510 AED 500 AED O 10,400 AED
Suppose that you barrow 10,000 AED at 1% compounded interest, the the total amount to pay in five years is O 10,000 AED 10,510 AED 500 AED O 10,400 AED
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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![**Question:**
Suppose that you borrow 10,000 AED at 1% compounded interest, the total amount to pay in five years is:
- ○ 10,000 AED
- ● 10,510 AED
- ○ 500 AED
- ○ 10,400 AED
**Explanation:**
This question tests the understanding of compound interest calculations. Given a principal amount of 10,000 AED with an annual interest rate of 1% compounded annually, the amount after five years can be calculated using the compound interest formula:
\[ A = P \left(1 + \frac{r}{n}\right)^{nt} \]
Where:
- \( A \) is the amount of money accumulated after n years, including interest.
- \( P \) is the principal amount (10,000 AED).
- \( r \) is the annual interest rate (1% or 0.01).
- \( n \) is the number of times interest is compounded per year (1 for annually).
- \( t \) is the time in years (5 years).
\[ A = 10,000 \left(1 + \frac{0.01}{1}\right)^{1 \times 5} = 10,000 \times (1.01)^5 = 10,510 \text{ AED} \]
Thus, the correct answer is **10,510 AED**.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F37bb73ef-17af-4632-b3e9-6fec814abd09%2F4fbe3634-3f43-479b-8ea5-cba5d78757c0%2Fvr5hpk3_processed.png&w=3840&q=75)
Transcribed Image Text:**Question:**
Suppose that you borrow 10,000 AED at 1% compounded interest, the total amount to pay in five years is:
- ○ 10,000 AED
- ● 10,510 AED
- ○ 500 AED
- ○ 10,400 AED
**Explanation:**
This question tests the understanding of compound interest calculations. Given a principal amount of 10,000 AED with an annual interest rate of 1% compounded annually, the amount after five years can be calculated using the compound interest formula:
\[ A = P \left(1 + \frac{r}{n}\right)^{nt} \]
Where:
- \( A \) is the amount of money accumulated after n years, including interest.
- \( P \) is the principal amount (10,000 AED).
- \( r \) is the annual interest rate (1% or 0.01).
- \( n \) is the number of times interest is compounded per year (1 for annually).
- \( t \) is the time in years (5 years).
\[ A = 10,000 \left(1 + \frac{0.01}{1}\right)^{1 \times 5} = 10,000 \times (1.01)^5 = 10,510 \text{ AED} \]
Thus, the correct answer is **10,510 AED**.
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