Answer to Question #301393 in Financial Math for Ndi

Question

Tshepo want to buy a big screen TV.She has five interests rates to choose from if she borrows the money from the bank.the cheapest option

*29%per year,compounded daily

*30%per year, compounded semi annually

*28.5%pet year, compounded weekly

*29.5%per year, compounded every 2 months.

Answer 1

$FV=PV (1+\frac{r}{m})^{nm}$

Where FV is the future amount to be repaid

PV is the amount borrowed now

r is the rate of interest

m is the number of times compounded

n is the number of periods in years.

Assume PV=1000

A) $FV=1000 (1+\frac{0.29}{365})^{365×5}$

$FV=4260.66$

B) $FV=1000(1+\frac{0.3}{2})^{2×5}$

$FV=4045.56$

C)$FV=1000 (1+\frac{0.285}{52})^{52×5}$

$FV=4141.71$

D) $FV=1000 (1+\frac{0.295}{6})^{6×5}$

$FV=4220.21$

E)$FV=1000 (1+\frac{0.29}{12})^{12×5}$

$FV=4190.23$

Of all these options available, only option B) is the cheapest or lowest in terms of repayment. So she'd opt for 30% per annum compounded semiannually