Interest rate: Rachael wants to borrow $6,000 for a period of four years. She has two choices. Her bank is offering to lend her the amount at 7.25 percent compounded annually. She can also borrow from her company and will have to repay a total of $8,130.93 at the end of four years. Should Rachael go with her bank or the company, and what is the interest rate if she borrows from her company? (Round to the nearest percent.)
A) Bank / 9%
B) Company / 7%
C) Bank / 8%
D) Company / 6%

Question

Quizplus · Accepted Answer

The interest rate for the company loan can be calculated using the formula:A = P(1 + r/n)^(nt)where:A is the total amount to be repaidP is the principal amount borrowedr is the annual interest raten is the number of times per year that the interest is compoundedt is the number of yearsIn this case, we have:A = $8,130.93P = $6,000r = ?n = 1 (compounded annually)t = 4Substituting these values into the formula, we get:$8,130.93 = $6,000(1 + r/1)^(1*4)$8,130.93 = $6,000(1 + r)^4(1 + r)^4 = $8,130.93/$6,000(1 + r)^4 = 1.3551551 + r = 1.1623r = 0.1623 or 16.23%Therefore, the interest rate for the company loan is 16.23%, which is higher than the bank's rate of 7.25%. So, Rachael should go with her bank.

Interest Rate: Rachael Wants to Borrow $6,000 for a Period