Question

Parker wants to buy a car and has a choice between two different banks. One bank is offering a simple interest rate of 3 2% and the other bank is offering a rate of 3%

compounded annually. If Parker decides to deposit $7,000 for 25 years, which bank would be the better deal?
A.)a simple interest rate of 3.2%
B.)a compound interest rate of 3%

Answer 1

The better deal would be simple interest rate of 3.2%

Explanation:

In order to calculate which bank would be the better deal If Parker decides to deposit $7,000 for 25 years, we would have to make the following calculation:

A. simple interest rate of 3.2%.

Therefore, FV= P*r*t

=$7,000*3.2%*25

=$5,600.

B. compound interest rate of 3%

Therefore, FV=PV(1+r)∧n

FV=$7,000(1+0.03)∧25

FV=$14,656

The better deal would be simple interest rate of 3.2%