Fixed deposits are loan arrangements where a specific amount of funds is placed on deposit under the name of the account holder. The money placed on deposit earns a fixed rate of interest.
b) What is meant by simple Interest. Stat the formula used to calculate simple Interest(you must explain the meaning of all the variables in the formula).
Simple interest is just the amount of money paid on a loan. It is the easiest type of interest to calculate and understand.
The formula for finding the simple interest, I is given below:
- P is the principal (the amount of money borrowed)
- r is the interest rate (per year or per annum)
c) What is meant by Compund Interest. State the formula used to calculate Compound Interest ( you must explain the meaning of all the variables in the formula).
When you borrow money from a bank, you pay interest. Interest is really a fee charged for borrowing the money, it is a percentage charged on the principle amount for a period of a year - usually.
Formula:
M = P( 1 + i )n
M is the final amount including the principal.
P is the principal amount.
i is the rate of interest per year.
n is the number of years invested.
d) Base on the given profiles ( Peter, John, Bank) provided in the above scenariio, explain with reasons which bank should Peter and John invest in.
John should take Bank ABC due to John long term working experience, he can gain more for every 5 years.
Peter should take Bank XYZ, since he has not much of working experience and he needs to have the flexibility to withdraw his money easily.
e)
Bank ABC
I=P r t
I=(40000)(6%)(5yrs)
I=$12000
Total is $52000
Bank XYZ
A = P(1 + r)n
A=40000(1+5.25)5
A= 51,661.92
The total is $51,661
Bank ABC has high interest which is recommended.
