To calculate the compound interest on a loan, you can use the formula:
A = P (1 + r/n)^(nt)
Where:
- A = the amount of money accumulated after n years, including interest.
- P = the principal amount (the initial loan amount).
- r = annual interest rate (decimal).
- n = the number of times that interest is compounded per year.
- t = the number of years the money is borrowed or invested.
In this case, you have:
- P = 10000
- r = 10/100 = 0.10
- n = 1 (assuming interest is compounded annually)
- t = 3
Plugging these values into the formula gives:
A = 10000 (1 + 0.10/1)^(1*3)
A = 10000 (1 + 0.10)^3
A = 10000 (1.10)^3
A = 10000 * 1.331
A = 13310
The total amount after 3 years will be $13,310.
To find the compound interest earned, subtract the principal from this amount:
Compound Interest = A – P
Compound Interest = 13310 – 10000 = 3310
So, the compound interest on a three year $10,000 loan at a 10 percent annual interest rate is $3,310.