Accounting: What the Numbers Mean 9th Edition by Wayne W McManus, Daniel F Viele, David H Marshall

Exercise 53

Compare investment alternatives A friend has $4,800 that has been saved from

her part-time job. She will need her money, plus any interest earned on it, in six months and has asked for your help in deciding whether to put the money in a bank savings account at 5.5% interest or to lend it to Judy. Judy has promised to repay $5,100 after six months.

Required:

a.Calculate the interest earned on the savings account for six months.

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b. Calculate the rate of return if the money is lent to Judy. Round your percentage answer to two decimal places.

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c. Which alternative would you recommend? Explain your answer.