Videos: Payment Plans and Making Choices, Compound

3. Sagheer received two offers for a property that he is selling. Offer 1 consists of $700,000 immediately and offer 2 consists of $500,000 now and $110,000 per year at the end of the next 2 years. If money earns 6% compounded semi-annually, which offer has a better economic advantage and by how much, in today’s dollars?

4. Anna borrowed $1,000 from a local loan shark on January 1, 2010, at j12=24%. On January 1 2012, Anna paid the loan shark $500, and the loan shark agreed to lower the rate to j12=18%.

(a) How much money will Anna owe as of January 1, 2014?

(b) If Anna pays the balance, how much interest will she have paid?