The lending institution has two options which is: 1: They will offer an annual simple interest rate of 15% howev the year for 5 years. 2: They will offer an annual compound interest rate of 10% for he term.

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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IV.
Odette and Johnson planned to put up a business which is a gaming hub for online games. They needed PHP
250,000 as the capital to fully operate the business planned by borrowing the capital into a lending company
in their town. The lending institution has two options which is:
Option 1: They will offer an annual simple interest rate of 15% however they will pay interest every
end of the year for 5 years.
Option 2: They will offer an annual compound interest rate of 10% for 5 years and they will pay for it
after the term.
Task:
a. Compute for each offer in option 1 and option 2.
b. Which option will make a disadvantage for Odette and Johnson?
Transcribed Image Text:IV. Odette and Johnson planned to put up a business which is a gaming hub for online games. They needed PHP 250,000 as the capital to fully operate the business planned by borrowing the capital into a lending company in their town. The lending institution has two options which is: Option 1: They will offer an annual simple interest rate of 15% however they will pay interest every end of the year for 5 years. Option 2: They will offer an annual compound interest rate of 10% for 5 years and they will pay for it after the term. Task: a. Compute for each offer in option 1 and option 2. b. Which option will make a disadvantage for Odette and Johnson?
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