Question

Anne Morgan wants to borrow $6,000 for a period of four years. She has two choices. Her bank will lend her the amount at 7.25 percent compounded annually. She can also borrow from her firm and will have to repay a total of $8,130.93 at the end of four years. Should Anne choose her bank or the firm, and what is the interest rate if she borrows from her firm? (Round to the nearest percent.)

Answer 1

yes Anne should choose the bank / 2,2130.96

Step-by-step explanation:

as it is not said we will assue that taking the bank option there will be four payments at the end of the year, so let´s first remember te formula for the future value calculation:

`FV=PV*(1+i)^(n)`

where FV is future value, PV is the present value, i is the periodic interest rate and n is the number of periods. So applying to this particular problem we have:

`FV=6,000*(1+0.0725)^(4)`

`FV=7,938.54`

so the first answer is yes Anne should choose the bank.

the second answer is calculated just doing 8,130.96-6,000 so it will be 2,2130.96