percent annual interest or for one year at 8 percent annual

percent annual interest or for one year at 8 percent annual interest. Assume interest is paid in fuli at the end of each year at the same 8 percent rate? Compare this to the 10 percent three-year loan 10 b. What if interest rates on the 8 percent loan go up to 13 percent in year 2 and 18 percent in year 37 What would be the total interest cost compared to the 10 percent, thvee-year an? loan

Solution

A.

If the rate is same and constant

So,

Interest cost at 8%

=$150000 x 8% x 3

=$36000

For 10 % Interest cost

=$150000 x 10% x 3

=$45000

So total interest savings = Interest cost 10%- Interest cost 8%

=$45000-$36000= $9000

B.

If the rates are not constant

Year

Interest Rate

Amount

1

$150000 x 8%

$12000

2

$150000 x 13%

$19500

3

$150000 x 18%

$27000

Total =$12000+$19500+$27000

=$58500

Comparing it with 10 % interest

So

$58500-$45000=$13500 is the cost saving.

PLEASE RATE and comment for any queries before proving negative feedback.

thank you

Year	Interest Rate	Amount
1	$150000 x 8%	$12000
2	$150000 x 13%	$19500
3	$150000 x 18%	$27000