Question

X must borrow $2000 for 2 years. He is offered the money at: (A) 5% compounded quarterly (B) % 8 3 5 compounded annually (C) % 2 1 5 simple interest Which offer should he accept

Answer 1

A)

$FV=2000(1+0.05/4)^{2\cdot4}=\$2208.97$

B)

$FV=2000(1+0.0835)^{2}=\$2347.94$

C)

$FV=2000(1+0.0215\cdot2)=\$2086$

Since $FV=\$2086$ is minimal, he should accept offer (C).