Answer:
(1) First Bank pay simple interest, number of year is 11.62 years
(2) Second Bank pay compound interest, number of year is 8.8 years
Explanation:
Future value (FV): $185,000
Rate: 7% per annual
Present value (PV): $102,000
Total interest required to have enough morning to buy a house = $185,000 - $102,000 = $83,000
(1) First Bank pay simple interest:
$83,000 = $102,000 * 7% * number of years
=> Number of years = $83,000/ ($102,000 * 7%) = 11.62 years
(2) Second Bank pay compound interest:
$83,000 = $102,000*(1+7%)^number of years - $102,000
=> (1+7%)^number of years = ($83,000+$102,000)/$102,000
⇔ (1.07)^number of years = 1.8137
=> Number of years = log (1.8137, 1.07) = 8.8 years
