Question

Question 1: Answer the following

a)Which would you prefer? (a) $1,000 a year for 10 years, or (b) $800 a year for 15 years at 5% interest? (Chapter 17) (10%)

B) Which would you prefer? (a) $1,000 a year for 10 years, or (b) $800 a year for 15 years at 15% interest? (Chapter 17) (10%)

Answer 1

Answer : a) Interest rate (r) = 5% = 0.05

Now for option a :

Simple Interest (S.I.) = Principle amount * Interest rate * Time

By putting given values in above formula we get,

S.I. = 1000 * 0.05 * 10

=> S.I. = 500

Total amount after 10 years = Principle amount + Simple interest = 1,000 + 500 = $1,500.

For option b :

Simple Interest (S.I.) = Principle amount * Interest rate * Time

By putting given values in above formula we get,

S.I. = 800 * 0.05 * 15

=> S.I. = 600

Total amount after 15 years = Principle amount + Simple interest = 800 + 600 = $1,400.

As by choosing option a I am getting higher total amount, hence here I will prefer option a.

B) Interest rate (r) = 15% = 0.15

For option a :

Simple Interest (S.I.) = Principle amount * Interest rate * Time

By putting given values in above formula we get,

S.I. = 1000 * 0.15 * 10

=> S.I. = 1,500

Total amount after 10 years = Principle amount + Simple interest = 1,000 + 1,500 = $2,500.

For option b :

Simple Interest (S.I.) = Principle amount * Interest rate * Time

By putting given values in above formula we get,

S.I. = 800 * 0.15 * 15

=> S.I. = 1,800

Total amount after 15 years = Principle amount + Simple interest = 800 + 1,800 = $2,600.

As by choosing option b I am getting higher total amount, hence here I will prefer option b.