Question

You have to lend Rs. 75000
for two years for a purpose. If a finance company A lends
money at 10% per annum compounded annually and
finance company B lends money at 8% per annum
compounded semi-annually. From which finance
company will you take the loan and why? Give your
reason with calculation.)​

Answer 1

Answer:

The amount to be returned at Finance company B is less than that of Finance company A so it is profitable to take the loan from Finance company B

Step-by-step explanation:

★ Finance company A :

A = $\sf{P(1 + \frac{R}{100}) ^{n}}$

A = $\sf{75,000(\frac{10}{100})^{2}}$

A = 75,000 (1 + 0.1)²

A = 75,000 × 1.21

A = 90,750

★ Finance company B :

A = P$\sf{(1 + \dfrac{\frac{R}{2}}{100})^{n \times 2}}$

A = $\sf{75,000(1 + \dfrac{\frac{8}{2} }{100})^{2 \times 2}}$

A = 75,000 (1 + 0.04)⁴

A = 75,000 × 1.16986

A = 87,739.5

___________________________

★ Finance company A :

• Interest = Rs. 15,750
• Total amount = Rs. 90,750

★ Finance company B :

• Interest = Rs. 12,739.5
• Total amount = Rs. 87,739.5

Therefore,

The amount to be returned at Finance company B is less than that of Finance company A so it is profitable to take the loan from Finance company B.