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Concept explainers
To find: Analyzing Interest Rates on a Mortgage Colleen and Bill have just purchased a house for , with the seller holding a second mortgage of . They promise to pay the seller plus all accrued interest 5 years from now. The seller offers them three interest options on the second mortgage:
a. Simple interest at per annum.
b. interest compounded monthly.
c. interest compounded continuously.
Which option is best? That is, which results in paying the least interest on the loan?
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Answer to Problem 54AYU
Solution:
Simple interest with per annum is best.
Explanation of Solution
Given:
Calculation:
a. Simple interest at per annum
Total amount after 5 years
b. interest compounded monthly
Total amount after 5 years
c. interest compounded continuously
Total amount after 5 years
Chapter 5 Solutions
Precalculus
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