Luke is borrowing $10,000 from the bank. The bank offers him a choice between two 10-year payment plans:
Plan 1: Luke's debt accumulates 10% annual interest which compounds quarterly. Luke pays off half his balance after 5 years, and the rest at the end of the 10 years.
Plan 2: Luke's debt accumulates 10% annual interest which compounds annually. Luke pays off his full balance at the end of the 10 years.
What is the (positive) difference between Luke's total payments under Plan 1 and his total payments under Plan 2? Round to the nearest dollar.
+36916 Plan1 10000 ( 1 + .10/4)20 = balance at 5 yrs = 16386.16 pay half leaving half 8193.08
at the end of 10 years 8193.08 (1+.10/4)20 = remaining balance = 13425.32
total payments = 8193.08 + 13425.32 = 21 618.40
Plan2 10 000 (1+ .1)10 = 25937.42 due at 10 years
You can finish from here ......
