Answer:
A) 4.77%.
B) 5%.
Step-by-step explanation:
Given that Adam borrows $ 6,000 from his parents today for university fees and he promises to pay a lump sum of $ 6,900 in 3 years' time, to calculate the effective annual interest rate and the equivalent simple annual interest rate the following calculations must be performed:
A)
6,900 = 6,000 x (1 + X / 1) ^ 3x1
6,900 = 6,000 x 1X ^ 3
6,900 = 6,000 x 1 x 4.77 ^ 3
Thus, the interest rate of said investment is 4.77% per year.
B)
(6,900 - 6,000) / 3 = 300
6,000 = 100
300 = X
300 x 100 / 6,000 = X
30000 / 6,000 = X
5 = X
Thus, the simple interest rate would be 5% per year.
