Question

engineering economics

You investment options. The first option is a bond with a maturity date three years from now that offers 12.25% per year simple interest rate, payable annually. The interest can be withdrawn only at the end of year 3. Another option is a tax-free market savings account that offers 11.5% per year simple interest rate, and the funds can be withdrawn any time after 2 years. are given KDS000 as a graduation gift and you are looking into two high interest Which is a better alternative on the basis of total interest paid at the end of year 3? (20 pts) a) First alternative with interest - KD 612.5 b) First alternative with interest KD 1837.5 c) Second alternative with interest KD 1725 d) Second alternative with interest- KD 1150

Answer 1

Simple interest can be calculated using the following formula

$\large Interest = Prt$

Where, P = principal

R = interest rate

T = time period

Case 1. P = KD 5,000

Rate, r = 12.25% per year = 0.1225

Time, t = 3 years

$\large Interest = 5,000*0.1225*3 = KD 1,837.50$

Case 2. P = KD 5000

Rate, r = 0.115

Time, t = 3

Interest = KD 5,000*0.115*3 = KD 1,725

Select first alternative with interest = KD 1,837.50

Option B First alternative with interest KD 1,837.50

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