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Math

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Serena wants to borrow $15 000 and pay it back in 10 years. Interest rates are
high, so the bank makes her two offers:
• Option 1: Borrow the money at 10%/a compounded quarterly for
the full term.
• Option 2: Borrow the money at 12%/a compounded quarterly for 5 years
and then renegotiate the loan based on the new balance for the last 5 years.
If, in 5 years, the interest rate will be 6%/a compounded quarterly, how
much will Serena save by choosing the second option?

steps and formula to get answer will be nice, so i know how it works

  • Math - ,

    Option !:

    P = Po(1+r)^n.

    r = (10%/4) / 100% = 0.025 = Quarterly
    % rate expressed as a decimal.

    n = 4Comp./yr * 10yrs = 40 Compounding
    periods.

    P = 15000(1.025)^40 = $40,275.96

    Int. = P - Po = 40275.96 - 15000 = 25,275.96.

    Option 2:

    P = 15000(1.03)^20 = $27,091.67

    P = 27091.67(1.015)^20 = $36,488.55.

    Int. = 36,488.55 - 15000 = $21,488.55.

    Saved = 25,275.96 - 21,488.55 = $3787.41

    NOTE: The procedure for calculating r is the same for both options.

  • sex - ,

    i like boobs

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