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13 June, 00:44

2) Jennifer is considering taking out a loan with a principal of

$16,200 from one of two banks. Bank F charges an interest

rate of 5.7%, compounded monthly, and requires that the

loan be paid off in eight years. Bank G charges an interest

rate of 6.2%, compounded monthly, and requires that the

loan be paid off in seven years. How would you

recommend that Jennifer choose her loan?

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Answers (1)
  1. 13 June, 03:31
    0
    Step-by-step explanation:

    We would apply the formula for determining compound interest which is expressed as

    A = P (1+r/n) ^nt

    Where

    A = total value of the loan at the end of t years

    r represents the interest rate.

    n represents the periodic interval at which it was compounded.

    P represents the principal or initial amount borrowed

    Considering Bank F's offer,

    From the information given,

    P = $16200

    r = 5.7% = 5.7/100 = 0.057

    n = 12 because it was compounded 12 times in a year.

    t = 8 years

    Therefore,

    A = 16200 (1 + 0.057/12) ^12 * 8

    A = 16200 (1.00475) ^96

    A = $25531.2

    Considering Bank G's offer,

    From the information given,

    P = $16200

    r = 6.2% = 6.2/100 = 0.062

    n = 12 because it was compounded 12 times in a year.

    t = 7 years

    Therefore,

    A = 16200 (1 + 0.062/12) ^12 * 7

    A = 16200 (1.00517) ^84

    A = $24980.4

    Bank G's offer is better because she would pay a lower amount of interest in total
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