Neal wants to borrow $2,500 and has received the offers from his local banks. Which offer should Neal accept if he wants to repay the loan in one single payment two years from now?
A) Bank A, which offers a simple rate of 4%.
B) Bank B, which offers a simple rate of 5%.
C) Bank C, which offers a rate of 4% compounded annually.
D) Bank D, which offers a rate of 5% compounded annually.
E) Bank E, which offers a rate of 5% compounded monthly.

Question

Quizplus · Accepted Answer

Bank A's offer of a simple rate of 4% will result in the lowest repayment amount because simple interest does not compound, making it cheaper than the other options where interest compounds annually or monthly.

Neal Wants to Borrow $2,500 and Has Received the Offers