What is the total amount the bank would receive after lending $7000 for 3 years at an interest rate of 5% compounded annually?

Question

anonymous · Answer

In the simplest form of a repayment schedule 7000 * (1.05)^3 that is if it receives all the money at the end of the loan. If not it gets more complicated, you would have to specify a repayment model.

cranberry · Answer

so I tried to figure this out and I can understand multiplying 7000 X 1.05 but then multiply it again X3?

anonymous · Answer

you have to multiply it by 1.05 to the power of 3
multiply 7000 X 1.05, this is the amount owed after 1 year.
7000 X 1.05 X 1.05 is the amount owed after 2 years
and 7000 X 1.05 X 1.05 X 1.05 = 7000 X 1.05^3 is the amount owed after 3 years since you have to pay interest on the "accrued interest".

cranberry · Answer

ok sorry if I can't figure it right but I appreciate your help! So the first year it would be $7350, the 2nd year it is $7715. and the 3rd year  $8100.75? but is this the last amont so the bank earned $1100.75?

anonymous · Answer

here P=7000
R=5/100=0.05
T=3