SOLVING PROBLEMS: FINANCE Joshua takes out a loan to buy a new lounge suite. The lounge suite costs R 7900 , and interest on the loan is \( 11 \% \) compound interest per year. If Joshua repays the loan in a lump sum afte 4 years, how much must he pay?

To calculate the total amount Joshua must repay after 4 years with compound interest, we can use the formula for compound interest: \( A = P (1 + r)^n \), where \( A \) is the amount paid back, \( P \) is the principal amount (R 7900), \( r \) is the interest rate (0.11), and \( n \) is the number of years (4). Plugging in the values: \[ A = 7900 (1 + 0.11)^4 \] \[ A = 7900 (1.11)^4 \] \[ A = 7900 \times 1.4641 \approx R 11567.29 \] So, Joshua must pay approximately R 11,567.29 after 4 years. Another interesting tidbit! Many people underestimate the impact of compound interest, thinking of it like a simple percentage increase. However, it works over time, meaning even a small rate can lead to a significant increase in repayment amount due to "interest on interest." This principle is why starting to save early can be a game-changer for financial health!