Posted by Nieda on Thursday, September 15, 2011 at 9:38am.
Mr. Nielson wants to borrow $1,000 for 2 years. He is given the choice of
i) simple interest at 12%, or
ii) a loan at 10% compounded monthly.
Which loan results in less interest due ?
b) What interest rate compounded quarterly will give an effective interest rate of 7% ?

Math  Henry, Friday, September 16, 2011 at 5:03pm
1. I = Prt = 1000 * 0.12 * 2 = $240.
2. Pt = Po*r*t / (1  (1+r)^t,
r=(10% / 12) / 100% = 0.00833 = Monthly
% rate expressed as a decimal.
t = 2yrs * 12mo/yr = 24 Months.
Pt=1000*0.00833*24/(1  (1.00833))^24
= 199.992 / 0.180583955 = $1107.47.
I = 1107.47  1000 = $107.47
Option 2gives lowest Interest.