College Math

Solution: The principal is compounded quarterly, so we make use of the formula of compound interest. Given that, A = 6539.96, P = 5000, n = 6*4 = 24, i = r/4. Substituting the values in the formula for compound interest, we get: = ∗ (1 + ) 6539.96 = 5000 ∗ (1 + ) 24 (1 + ) 24 = 1.30799 (1 + ) = (1.30799) 124 (1 + ) = 1.01125 = 4 = 0.01125 = 0.01125 ∗ 4 = 0.045 Hence, rate of interest = 4.5% 5. d Solution: In this case, we shall find the effective rate of interest for Bank of Canada and compare with that of the Bank of America. r = 7.8%, m = 4 (since there are 4 quarters in a year). The effective interest rate becomes = �1 + 0.078 4 � 4 − 1 = 0.080311 or 8.03% It should be noted that the nominal interest rate charged by Bank of Canada is lower than that for Bank of America but the effective rate is higher. Hence, Joe should take loan from Bank of America charging 8%. 6. b

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