Compound Interest ILLUSTRATION: On January 2,2007,Tomalczyk borrows $20,000 for 3 years at a rate of 7%per year.Calculate the total interest cost for all three years,assuming interest is compounded annually. Compound Interest Accumulated Date Calculation Interest Balance Jan.2007 $ 20,000 2007 $20,000X7% $ 1,400 21,400 2008 $21,400X7% 1,498 22,898 2009 $22,898X7% 1,603 24,501 $ 4,501 Chapter 6-10 LO 2 Distinguish between simple and compound interest.Chapter 6-10 ILLUSTRATION: On January 2, 2007, Tomalczyk borrows $20,000 for 3 years at a rate of 7% per year. Calculate the total interest cost for all three years, assuming interest is compounded annually. Compound Interest Accumulated Date Calculation Interest Balance Jan. 2007 $ 20,000 2007 $20,000 x 7% $ 1,400 21,400 2008 $21,400 x 7% 1,498 22,898 2009 $22,898 x 7% 1,603 24,501 $ 4,501