Answer to Question #207598 in Finance for EUNICE

Question #207598

Matano upon retirement came across the following investment regimes;

a) 12% p.a compounded annually

b) 11% p.a compounded quarterly

c) 10% p.a. compounded monthly

d) 9.85% p.a compounded continuously

 

advise

i) As a rational lender which one would you choose?                                               (3 marks)

ii) As a rational borrower which of the regimes would you choose?                         (3 marks)

 


1
Expert's answer
2021-06-20T17:58:04-0400

Interest=A-P

where A is the amount ,P is the initial principal balance, r is the interest rate, n is the number of times interest is compounded per time period and t is the number of time periods

For example let's take P=2000, t=4years

(a)


(b)


(C)


(d)


(i)A rational lender would choose option a because it earns highest interest.

(ii)A rational borrower should choose option d because it earns low interest rate.



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