Question

Your cousin Vinny wants to borrow $23750. He’s willing to pay you back over 8 years with simple interest. Your alternative is to invest in the $23750 into an account paying 7.75% compounded monthly. A) How much interest would you earn in your investment if you deposit $23750 into an investment account for 8 years? Round to nearest cent. B) What annual interest rate to you charge Vinny in order to make the same amount of interest on his loan as your investment account? Round to nearest hundredth of a percent.

Answer 1

a) I (interest) = $ 20,311.62

b) ≈ 8.03%

A = $ 44,061.62

A = P + I where

P (principal) = $ 23,750.00

I (interest) = $ 20,311.62

A = $ 44,061.62

____________________________________

A = $ 43,959.59

A = P + I where

P (principal) = $ 23,750.00

I (interest) = $ 20,209.59

Explanation: