What is the compound interest on a three-year, $100.00 loan at a 10 percent annual interest rate?
Compound interest is the interest paid on both principal and interest, compounded in regular intervals.
Answer: The compound interest on a three-year, $100.00 loan at a 10 percent annual interest rate is $ 33.1.
Let us apply the compound interest formula and thereby solve the given problem.
The formula for Compound interest is:
Compound Interest = Amount - Principal
CI = P(1 + (r/n) )nt - P
Where, 'P' is the principal amount,
'r' is the rate of interest
't' is the time
'n' represents the number of times the interest is compounded per unit of time
The general format: CI = P(1 + r )t - P
P = $100.00, r = 10% = 0.1, t = 3 years
Compound Interest = 100(1 + 0.1)3 - 100
= 100(1.1)3 - 100
=100 × 1.331 - 100
= 133.1 - 100