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)

Expert's answer

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.

Learn more about our help with Assignments: Finance

## Comments

## Leave a comment