Question

A friend has $950 that has been saved from her part-time job. She will need her money, plus any interest earned on it, in six months and has asked for your help in deciding whether to put the money in a bank savings account at 5% interest or to lend it to Simone. Simone has promised to repay $969 after six months.Calculate the rate of return if the money is lent to Simone. (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))Rate of return on annual basis:_____%

Answer 1

4.04%

Step-by-step explanation:

A = P(1+r)^n

A is the total amount Simone would repay = $969

P is the amount lent Simone = $950

n is the duration for the loan to be repaid = 6 months = 6/12 = 1/2 year

969 = 950(1+r)^1/2

(1+r)^1/2 = 969/950

(1+r)^1/2 = 1.02

1+r = 1.02^2

1+r = 1.0404

r = 1.0404 - 1 = 0.0404 = 4.04%

Rate of return is 4.04%