Math

posted by .

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

Respond to this Question

First Name
School Subject
Your Answer

Similar Questions

  1. finance

    3. You decide to borrow $200,000 to build a new house. The bank charges an interest rate of 6% compounded monthly. If you pay the loan back over 30 years, what will your monthly payment be [rounded to the nearest dollar]?
  2. finance

    3. You decide to borrow $200,000 to build a new house. The bank charges an interest rate of 6% compounded monthly. If you pay the loan back over 30 years, what will your monthly payment be [rounded to the nearest dollar]?
  3. fianance

    3. You decide to borrow $200,000 to build a new house. The bank charges an interest rate of 6% compounded monthly. If you pay the loan back over 30 years, what will your monthly payment be [rounded to the nearest dollar]?
  4. uno

    You decide to borrow $200,000 to build a new house. The bank charges an interest rate of 6% compounded monthly. If you pay the loan back over 30 years, what will your monthly payment be [rounded to the nearest dollar]?
  5. Math

    Serena wanst to borrow $15 000 an pay it back in 10 years. Interest rates are so high, so the bank makes her 2 offers option 1 - borrow the money at 12%/a compounded quarterly for the full term option 2 -Borrow the money at 12%/a compunded …
  6. Mathematics and investment

    1. Angelo wants to renovate his house in 3 years. He estimates the cost 300,000. How much must Angelo invest now at 8% compounded quarterly in order to have 300,000 3 years from now. 2. Angelo Ancis want to save 500,000 in 5.5 years …
  7. math

    serena wants to borrow $15000 and pay it back in 10 years. the bank gives her 2 options 1: borrow the money at 10% compounded quarterly for the full term option 2: borrow the money at 12%compounded quarterly for 5 years and after 5 …
  8. math

    Steve wants to have $25000 in 25 years, he can only get 3.2% interest compounded quarterly. his bank will guarantee the rate for either 5 or 8 years in 5 years he can get 4% compounded quarterly for the remainder of the term in 8 years …
  9. Math

    The Problem: You win the grand prize on a game show. You have the following choices: Option 1: $1-million dollars paid as a $25 000 annuity every year over 40 years. Option 2: The present value of option 1 if the current interest …
  10. Math: Personal Finance

    Over the past 30 years, interest rates have varied widely. The rate for a 30-year mortgage reached a high of 14.75% in July 1984, and it reached a low of 4.64% in October 2010. A significant impact of lower interest rates on society …

More Similar Questions