Question

Bill Baxter has 28,000 to invest for a year. You can lend it to a sister who has agreed to pay 8% simple interest for the year. Or you can invest it with the bank at 6% compounded quarterly for the year. How much additional interest with a simple interest loan to sister generate? Finally effective interest rate for both investments.

Answer 1

Answer: Additional interest of $521.82 with a simple interest loan to sister generate.

Explanation:

Since we have given that

Principal = $28000

Rate of interest at simple interest = 8%

Number of year = 1

so, Interest becomes,

`(28000* 8* 1)/(100)\\\\=280* 8\\\\=\$2240`

Rate of interest compounded quarterly = 6%

Amount becomes,

`A=P(1+(r)/(400))^(4n)\\\\A=28000(1+(6)/(400))^4\\\\A=28000((406)/(400))^4\\\\A=\$29718.18`

So, Interest would be

`Amount-Principal\\\\=29718.18-28000\\\\=\$1718.18`

Hence, Additional interest is given by

`2240-1718.18\\\\=\$521.82`

Hence, Additional interest of $521.82 with a simple interest loan to sister generate.