How much does Rahul owe the bank at the end of the loan's term if he borrows $12,000 with a 5% interest rate compounded daily for 12 months?
The total amount that Rahul owes the bank at the end of the loan's term is $12,615.21.
Understanding Compound Interest Calculation
Compound interest is the interest calculated on the initial principal and also on the accumulated interest from previous periods. In this case, Rahul borrowed $12,000 from the bank at a 5% interest rate compounded daily for 12 months.
To calculate the total amount owed at the end of the loan's term, we can use the formula for future value of compound interest:
FV = P (1 + r)^mn
Where:
FV = Future value
P = Present value
r = interest rate
n = number of years
m = number of compounding periods per year
Plugging in the values:
$12,000 (1 + 0.05 / 365)^365 = $12,615.21
Therefore, at the end of the loan's term, Rahul will owe the bank a total of $12,615.21.