Howard owns a small electronics repair shop. He wants to borrow $10,000 now and repay it over the next 1 or 2 years. He believes that new diagnostic test equipment will allow him to work on a wider variety of electronic items and increase his annual revenue. Howard received 2-year repayment options from banks A and B. Amount to pay $ per year Amount to pay $ per year Year Bank A Bank B 1 5,378.05 5000.00 2 5,378.05 5775.00 Total Paid 10,756.10 10775.00 During a family conversation, Howard’s brother-in-law offered to lend him the $10,000 now and take $10,600 after exactly 1 year. Now Howard has three options and wonders which one to take. Which one is economically the best in terms of interest rate? Show hand to hand solution.

Howard owns a small electronics repair shop. He wants to borrow $10,000 now and repay it over the next 1 or 2 years. He believes that new diagnostic test equipment will allow him to work on a wider variety of electronic items and increase his annual revenue. Howard received 2-year repayment options from banks A and B. Amount to pay $ per year Amount to pay $ per year Year Bank A Bank B 1 5,378.05 5000.00 2 5,378.05 5775.00 Total Paid 10,756.10 10775.00 During a family conversation, Howard’s brother-in-law offered to lend him the $10,000 now and take $10,600 after exactly 1 year. Now Howard has three options and wonders which one to take. Which one is economically the best in terms of interest rate? Show hand to hand solution.

Economics Today and Tomorrow, Student Edition

1st Edition

ISBN:9780078747663

Author:McGraw-Hill

Publisher:McGraw-Hill

Chapter6: Saving And Investing

Section6.1: Why Save?

Problem 6R

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	Amount to pay $ per year	Amount to pay $ per year
Year	Bank A	Bank B
1	5,378.05	5000.00
2	5,378.05	5775.00
Total Paid	10,756.10	10775.00