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Sue can either borrow 10,000 dollars for 5 years with a simple interest of 7% annually or an interest which compounds annually for 6%. How much more money, rounded to the nearest dollar, would she have to pay back for the more expensive interest?

Lightning  Aug 3, 2018
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If you assume that Sue will NOT  pay any principal for 5 years, then:

 

7% x $10,000 x 5 years =$3,500 - interest only @ 7% simple interest.

 

$10,000 x 1.06^5 =$13,382.26 - $10,000 =$3,382.26 - interest only @ 6% compounded annually.

 

$3,500 - $3,382 =$118 extra that Sue will pay on the $10,000 loan.

Guest Aug 3, 2018
edited by Guest  Aug 3, 2018

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