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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.

 Mar 8, 2021
 #1
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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 ......

 Mar 8, 2021
 #2
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thanks!

Guest Mar 8, 2021

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