ToshaCollins_homework_unit8

ToshaCollins_homework_unit8 - 1600.00x.06 = 96 1600.00...

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Name: Tosha Collins Course Number: BU100 Section Number: 11AU Unit Number: 8 Barry and Steve are good friends. Barry wants to buy a new computer, but he doesn't have the money for it right now. Barry says that he will pay Steve $2,000 in five years if Steve gives him $1,600 for the computer today. Steve figures that there's an interest rate of 6% if he were to put the money in a bank instead of lending it to Barry. Assuming that there is no risk of Barry not paying the $2,000 when he says he will, should Steve go through with the loan or should he put his money in the bank? Explain your answer. FV= P (1+r) to the T power. P= Principal 1600.00 r= Interest 6% T= Number of time periods that interest will be compounded.
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Unformatted text preview: 1600.00x.06 = 96 1600.00+96=1696.00 1696.00x.06 = 101.76 1696.00+101.76=1797.76 1797.76x.06 = 107.87 1797.76+107.76=1905.63 1905.63x.06 = 114.34 1905.63+114.34=2019.97 2019.97x.06 = 121.20 2019.97+121.20=2141.14 Total Interest for 5 years = $541.17 Should Steve count the interest at the end of the fifth year, he would have an additional $128.27 thus making his total $2,269.61. His interest would total $669.61. I would NOT lend to Barry. Steven will only gain $400.00 if he loans to Barry, with the assumption that Barry will pay him back and pay the interest promised. If Steven puts his money in the bank, he will make an additional $269.61 guaranteed payable by the bank....
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This note was uploaded on 06/10/2010 for the course BU 100 BU100 taught by Professor Prof during the Spring '09 term at Kaplan University.

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