Question

Bill Baxter has 28,000 to invest for a year. You can lend it to a sister who has agreed to pay 8% simple interest for the year. Or you can invest it with the bank at 6% compounded quarterly for the year. How much additional interest with a simple interest loan to sister generate? Finally effective interest rate for both investments.

Answer 1

Answer: Additional interest of $521.82 with a simple interest loan to sister generate.

Step-by-step explanation:

Since we have given that

Principal = $28000

Rate of interest at simple interest = 8%

Number of year = 1

so, Interest becomes,

$\dfrac{28000\times 8\times 1}{100}\\\\=280\times 8\\\\=\ 2240$

Rate of interest compounded quarterly = 6%

Amount becomes,

$A=P(1+\dfrac{r}{400})^{4n}\\\\A=28000(1+\dfrac{6}{400})^4\\\\A=28000(\dfrac{406}{400})^4\\\\A=\ 29718.18$

So, Interest would be

$Amount-Principal\\\\=29718.18-28000\\\\=\ 1718.18$

Hence, Additional interest is given by

$2240-1718.18\\\\=\ 521.82$

Hence, Additional interest of $521.82 with a simple interest loan to sister generate.