ECONOMICS
COMPOUND INTEREST
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Option 1 is better because the total price is about $43 cheaper than option 2
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option 2 is better because it is about $43 cheaper than option 1
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option 1 is better because it is about $200 cheaper than option 2
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option 2 is better because it is about $200 cheaper than option 1
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Detailed explanation-1: -Examples: “12% interest” means that the interest rate is 12% per year, compounded annually. “12% interest compounded monthly” means that the interest rate is 12% per year (not 12% per month), compounded monthly. Thus, the interest rate is 1% (12% / 12) per month.
Detailed explanation-2: -interest compounded annually. noun [ U ] FINANCE. a method of calculating and adding interest to an investment or loan once a year, rather than for another period: If you borrow $100, 000 at 5% interest compounded annually, after the first year you would owe $5, 250 on a principal of $105, 000.
Detailed explanation-3: -Compound interest, can be calculated using the formula FV = P*(1+R/N)^(N*T), where FV is the future value of the loan or investment, P is the initial principal amount, R is the annual interest rate, N represents the number of times interest is compounded per year, and T represents time in years.
Detailed explanation-4: -Given: P = Rs. 15000, R = 20%, T = 1.5 year. Concept used: When Calculating semi annually, rate gets halved and time gets doubled. Calculation: C.I. semi annually ⇒ R = 10%, T = 3 years. C.I. = P [(1 + R/100)T-1] C.I. = 15000[(1 + 10/100)3-1] = 15000 × (1331 – 1000) × 1000. = 15 × 331. ⇒ C.I. = Rs. 4965. 23-Feb-2023