Question

Avery wants to buy a car and has a choice between two different banks. One bank is offering a simple interest rate of 32% and the other bank is offering a rate of 3%

compounded annually. If Avery decides to deposit $7,000 for 5 years, which bank would be the better deal?

Answer 1

If Avery decides to deposit $7,000 for 5 years, the bank would be the better deal would be bank is offering a rate of 3%

compounded annually

Explanation:

In order to calculate which bank would be the better deal If Avery decides to deposit $7,000 for 5 years, we would have to make the following calculation:

simple interest rate of 32%.

Therefore, I= P*r*t

=$7,000*32%*5

=$11,200.

compound interest rate of 3%

Therefore, FV=PV(1+r)∧n

FV=$7,000(1+0.03)∧5

FV=$8,114.

If Avery decides to deposit $7,000 for 5 years, the bank would be the better deal would be bank is offering a rate of 3%

compounded annually