You want to buy a camera, but you are $1000 short. Your favorite uncle, offers to lend you that money, if you pay him $1,200 two years from today. He compounds interest monthly. A greedy high school friend also offers to give you the money. However, she says there is going to be a loan processing fee of $20 that will be included in the loan amount (once you pay the processing fee, she lends you $1020). Your greedy friend is expecting to receive $1220 in two years, based on monthly compounding of interest.
(a) What is the monthly rate your favorite uncle is charging? What rate is your greedy friend charging?
(b) What effective annual rate are your favorite uncle and your greedy friend charging?
(c) Which one would you prefer to borrow from?
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Home » Business » You want to buy a camera, but you are $1000 short. Your favorite uncle, offers to lend you that money, if you pay him $1,200 two years from today. He compounds interest monthly. A greedy high school friend also offers to give you the money.