Q:

# Bill Baxter has 28,000 to invest for a year. You can lend it to a sister who has agreed to pay 8% simple interest for the year. Or you can invest it with the bank at 6% compounded quarterly for the year. How much additional interest with a simple interest loan to sister generate? Finally effective interest rate for both investments.

Accepted Solution

A:
Answer: Additional interest of $521.82 with a simple interest loan to sister generate.Step-by-step explanation:Since we have given that Principal =$28000Rate of interest at simple interest = 8%Number of year = 1so, Interest becomes,$$\dfrac{28000\times 8\times 1}{100}\\\\=280\times 8\\\\=\2240$$Rate of interest compounded quarterly = 6%Amount becomes,$$A=P(1+\dfrac{r}{400})^{4n}\\\\A=28000(1+\dfrac{6}{400})^4\\\\A=28000(\dfrac{406}{400})^4\\\\A=\29718.18$$So, Interest would be $$Amount-Principal\\\\=29718.18-28000\\\\=\1718.18$$Hence, Additional interest is given by$$2240-1718.18\\\\=\521.82$$Hence, Additional interest of \$521.82 with a simple interest loan to sister generate.