Exponentials
Compound Interest
Application 5
You would like to buy a new car that costs $20,000. Since you have not saved enough money, you will need to take out a loan. The bank is offering a loan at 5% annual interest. What equation will model this loan?
Step 1. Determine P. The initial amount borrowed is 20,000
P = 20000
Step 2. Determine r. The interest rate is 5%.
r = 0.05
Step 3. Write the equation.
A = P(1+r)t
A = 20,000(1+0.05)t
A = 20,000(1.05)t