Tom Angelo needs to borrow 1500 to expand his farm implement

Tom Angelo needs to borrow $1500 to expand his farm implement maintenance business. He learns that the local bank will lend him the money for two years at a rate of 10% compounded quarterly. After hearing this rate, Tom\'s grandfather offers to lend him the money for 2 years with a simple interest rate of 7%.

How much money will Tom save by borrowing the money from his grandfather?

Solution

Amount to be repaid if borrowed 1500 @ 10% compounded quarterly for 2 years

= 1827.60 dollars

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7% simple interest for 2 years = 1500x7%x2 = 210 dollars

Total amount to be repaid to grand father =1710 dollars

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Difference - 1827.60-1710 = 117.60 dollars

Thus Tom would save 117.60 dollars if borrowed from grand father.