My Math Forum The better deal

 Elementary Math Fractions, Percentages, Word Problems, Equations, Inequations, Factorization, Expansion

 March 11th, 2014, 12:37 AM #1 Senior Member     Joined: Oct 2013 From: Far far away Posts: 431 Thanks: 18 The better deal Suppose that you have $1000 in a savings account that pays 4.8% interest per year. Suppose, also, that you owe$500 at 1.5% per month interest. a) if you pay the interest on your loan for one month so that you can collect one month's interest on $500 in your savings account, what is your net gain or loss? b) if you pay the loan back with$500 from your savings account rather than pay one month's interest on the loan, what is your net gain or loss? C) what strategy do you recommend? I couldn't understand this problem. So any help will be deeply appreciated. Thanks
 March 11th, 2014, 10:20 AM #2 Math Team   Joined: Oct 2011 From: Ottawa Ontario, Canada Posts: 14,597 Thanks: 1039 Re: The better deal Loan, 1 month: 500 * .015 = 7.50 Savings, 1 month: 500 * (.048 / 12) = 2.00 Quite evident, right? Difference of 5.50: enough to pay barber to shave your beard :P
March 12th, 2014, 09:24 AM   #3
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Re: The better deal

I don't understand the problem as it is written, either:
Quote:
 Suppose that you have $1000 in a savings account that pays 4.8% interest per year. Suppose, also, that you owe$500 at 1.5% per month interest. a) if you pay the interest on your loan for one month so that you can collect one month's interest on $500 in your savings account, what is your net gain or loss? b) if you pay the loan back with$500 from your savings account rather than pay one month's interest on the loan, what is your net gain or loss? C) what strategy do you recommend?
If you have $1000 in your savings account and you leave it in there, you will be receiving interest on the$1000, not on $500. Thus: a) if you pay the interest on your loan for one month, you pay .015×500 = 7.50 The interest you receive on your savings for one month is .048×1000÷12 = 4.00 Thus you will have a loss of$3.50

b) if you pay back your loan from your savings, you will be receiving interest on your savings of $500, but will have no debt. Your interest will be .048×500÷12 = 2.00 Thus you will have a gain of$2.00

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