Question

Question6 Rashed plans to take a loan of 100,000 AED to buy a car, the bank available loan options are: Option 1: Total amount owed is due with a single payment at the end of year 10 with 7.5 % simple interest per year. Option 2: Total amount owed is due with a single payment at end of year 8 with 6.5% annually compound interest. Which option should Rashed choose? Match the closest correct answers for the below questions The total amount owed using Option 1? 0:31 The total amount owed using CRtion 2? Which account Rashed should select? Moving to another question will save this response.

Answer 1

(1) Total future amount payable for option 1 (AED) = Principal + (Principal x Loan duration x Interest rate)

= 100,000 + (100,000 x 10 x 7.5%) = 100,000 + 75,000 = 175,000

(2) Total future amount payable for option 1 (AED) = Principal x (1 + Interest rate)^{Number of years}

= 100,000 x (1.065)⁸ = 100,000 x 1.65499 = 165,499

(2) Option 2 has lower total payable future value, so Option 2 should be selected.