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(solution)- Business Math


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Explain which of the two options below results in a lower balance after 6 months on a debt of $2500.







? Annual simple interest of 12% applied at the end of the 6 months.







? A monthly interest rate of 1% applied at the end of each month and before the start of the next month.











Discuss why the two methods result in different results.











In what circumstances might you select one option over another??

 


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Annual xxxxxx interest xx 12% applied at the end xx the x months.

 

xx x PRT/100

 

= xxxxx * 12 x 6 ) /(12* xxxx = xxx

 

Amount to xx paid after x months = 2500 +150 x 2650

 

x monthly?interest rate?of 1% xxxxxxx xx the xxx xx each month xxx xxxxxx xxx xxxxx xx the next month.

 

A =P(1+r/100)t

 

= 2500 (1.01)6

 

=2653.80

 

Amount to be paid xxxxx 6 xxxxxx x 2653.80

 

Simple xxxxxxxx xxxxxx will xxxxxx xx lower balance

 

Discuss xxx xxx two xxxxxxx xxxxxx in xxxxxxxxx results.

 

The two methods differ xx xxxxxxx because xx first method xxx interest is calculated for six months on the xxxx xxxxxx at once but xx the second xxxxxx we are calculating the interest at xxx xx every xxxxxx xx when we calculate the xxxxxxxx at end xx second xxxxx xx xxx only calculate interest xx xxxxxxxx debt but xxxx on the xxxxxxxx xxxxxx xx 1st month. xx xxx second methods xxxxxx more xxxxxx than first.

 

In xxxx xxxxxxxxxxxxx might you xxxxxx one xxxxxx xxxx another??

 

We xxxxx xxxx to xxxxxx xxx xxxxxx xxxxxxx xxxxxxxxx when xx xxx taking loan or some debt.

 

We xxxxx like xx select xxx xxxxxx (Compound Interest) when xx xxx giving loan xx some deposit or xxxxxxx

 

 

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This paper was answered on 19-Jul-2017

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