Respuesta :
Answer:
Chris should go for the LOAN THAT IS COMPOUNDED ANNUALLY because the interest rate is lower compared to the simple interest
Step-by-step explanation:
Chris borrows 450 dollars from Gavin.
Step 1
We find Simple Interest
Gavin lets Chris choose either a simple interest loan for 10 years with a 3.5% interest rate
Formula = P × R × T
= 450 × 3.5% × 10
= $157.5
Step 2
We find compound interest
loan compound annually for 7 years with a 2% interest rate.
First, convert R as a percent to r as a decimal
r = R/100
r = 3.5/100
r = 0.035 rate per year,
Then solve the equation for A
Formula:
A = P(1 + r/n)^nt
A = 450.00(1 + 0.035/1)(1)(7)
A = 450.00(1 + 0.035)(7)
A = $572.53
Interest = A - P where
P (principal) = $450.00
I = $572.53 - $450.00
I (interest) = $122.53
Which should Chris choose if he wants the cheaper plan?
Comparing the calculations above, Chris should go for the Loan that is compounded annually because the interest rate is lower compared to the simple interest
