Thabiso borrowed R1250 from the bank at a compound interest rate of 8% p.a. Calculate how much he owes the bank at the end of 3 years.

Steps to Solve

1. Identify the given values

   Principal amount (P) = R5000 Interest rate (r) = 12% per annum = 0.12 Time period (t) = 3 years

2. Recall the compound interest formula

   The formula for compound interest is: $A = P(1 + r)^t$ Where: A = the future value of the investment/loan, including interest P = the principal investment amount (the initial deposit or loan amount) r = the annual interest rate (as a decimal) t = the number of years the money is invested or borrowed for

3. Substitute the given values into the formula

   $A = 5000(1 + 0.12)^3$

4. Simplify the expression inside the parentheses

   $A = 5000(1.12)^3$

5. Calculate $1.12^3$

   $1.12^3 = 1.12 \times 1.12 \times 1.12 = 1.404928$

6. Multiply the result by the principal amount

   $A = 5000 \times 1.404928 = 7024.64$

7. State the final amount

   The total amount Thabiso will owe after 3 years is R7024.64.