Question

Tristan wants to buy a car and has a choice between two different banks. One bank is offering a simple interest rate of 3% and the other bank is offering a rate of 2.5%

compounded annually. If Tristan decides to deposit $7,000 for 4 years, which bank would be the better deal?

Answer 1

The better deal would be simple interest rate of 3%

Explanation:

In order to calculate which bank would be the better deal If Trsitam decides to deposit $7,000 for 4 years, we would have to make the following calculation:

simple interest rate of 3%.

Therefore, I= P*r*t

=$7,000*3%*4

I=$840

FV= $7,000+$840

FV=7,840

compound interest rate of 2.5%

Therefore, FV=PV(1+r)∧n

FV=$7,000(1+0.25)∧4

FV=$17,089

The better deal would be simple interest rate of 3%