Question

Ruth Brown wants to borrow $2,600 for 90 days to pay her real 'estate tax. State Savings and Loan charges 7.25% ordinary interest while Security Bank charges 7.5% exact interest. A. What is the maturity value of each loan? B. Where should they borrow the money?

Answer 1

Explanation:

Ordinary interest rate = principal × rates × ( time / 360)

exact interest rate = principal × rates × ( time / 365)

for states saving and loan of rate 7.25 %

ordinary interest rate = $ 2600 × 0.0725 × ( 90 / 360) = $ 47.125

total amount due after 90 days = $ 2647.125

for Security Bank of 7.5%

exact interest = $2600 × 0.075 × ( 90 / 365) = $ 48.75

amount due after 90 days = $ 2600 + $ 48.75 = $ 2648.75

b) considering the amount to be paid at maturity it is better to borrow state savings and Loan although the difference is not really much.