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Nathan took out a student loan for 1200$ at 10 percent annual interest, compounded annually. If he did not repay any of the loan or interest during the first 3 years, which of the following is the closest to the amount of interest he owed for the 3 years.
A. 360
B. 390
C. 400
D. 410
E. 420
OA C
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Nathan took out a student loan for 1200$ at 10 percent annual interest, compounded annually. If he did not repay any...
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Solution:AAPL wrote: ↑Wed Nov 04, 2020 9:41 amGMAT Prep
Nathan took out a student loan for 1200$ at 10 percent annual interest, compounded annually. If he did not repay any of the loan or interest during the first 3 years, which of the following is the closest to the amount of interest he owed for the 3 years.
A. 360
B. 390
C. 400
D. 410
E. 420
OA C
We can use the annual compound interest formula: A = P(1 + r)^t. So we have:
A = 1200(1 + 0.1)^3
A = 1200(1.1)^3
A = 1597.2
The amount of $1597.20 is the total amount (principal plus interest) he owes, so the amount of interest he owes is 1597.2 - 1200 = $397.2, or approximately $400.
Answer: C
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