Question

You have to lend Rs. 75000 for two years for a purpose. If a

finance company A lends money at 10% per annum
compounded annually and finance company B lends money
at 8% per annum compounded semi-annuallly. From which
finance company will you take the loan and why? Give your
reason with calculation.
​

Answer 1

The amount to be returned at Finance company B is less than that of Finance company A so it is profitable to take the loan from Finance company B.

Explanation:

★ Finance company A :

A = 75,000 (1 + 0.1)²

A = 75,000 × 1.21

A = 90,750

★ Finance company B :

A = 75,000 (1 + 0.04)⁴

A = 75,000 × 1.16986

A = 87,739.5