Question

Orlando wants to borrow $3,000 for the purchase of a used car. he has to pay back the loan after 4 years. the two loan options are simple interest at a rate of 5.8% each year, or interest compounded annually at a rate of 5.2% each year . which method should he choose , simple or compound , and how much less will he owe using that method?

Answer 1

The amount in simple interest is $3624 and in compound interest is $3674 the difference is of $50. So he should choose Simple interest.

What is compound and simple interest?

Simple interest is based on the principal amount of a loan or deposit. In contrast, compound interest is based on the principal amount and the interest that accumulates on it in every period.

Here we have the principle is $3000 for 4 years at the rate of interest of 5.2%. Now we will calculate the total amount by simple interest and compounded annually.

By using Simple interest:-

$\rm SI=\dfrac{P\times T\times R}{100}=\dfrac{3000\times 4\times 5.2}{100}=624$

So the total amount will be =3000+624=$3624

By using the Compound interest formula:

$A=P(1+\dfrac{r}{n})^{nt}$

$A=3000(1+\dfrac{5.2}{1})^{4}$

$A=\ 3674$

The difference between the two amounts will be =3764-3624=$50

Hence amount in simple interest is $3624 and in compound interest is $3674 the difference is of $50. So he should choose Simple interest.

To know more about Compound interest Follow

brainly.com/question/24924853

#SPJ1