2. Simple versus compound interest Financial contracts involving investments, mortgages, loans, and so on are based on either a fixed or a variable interest rate. Assume that fixed interest rates are used throughout this question. Olivia deposited $800 at her local credit union in a savings account at the rate of 6.2% paid as simple interest. She will earn interest once a year for the next 7 years. If she were to make no additional deposits or withdrawals, how much money would the credit union owe Olivia in 7 years? $852.68   $1,147.20   $149.60   $1,218.88     Now, assume that Olivia’s credit union pays a compound interest rate of 6.2% compounded annually. All other things being equal, how much will Olivia have in her account after 7 years? $849.60   $75.57   $1,147.20   $1,218.88     Before deciding to deposit her money at the credit union, Olivia checked the interest rates at her local bank as well. The bank was paying a nominal interest rate of 6.2% compounded quarterly. If Olivia had deposited $800 at her local bank, how much would she have had in her account after 7 years? $81.04   $1,230.63   $850.77   $149.60

Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter22: Providing And Obtaining Credit
Section: Chapter Questions
Problem 3P: Del Hawley, owner of Hawleys Hardware, is negotiating with First City Bank for a 1-year loan of...
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2. Simple versus compound interest

Financial contracts involving investments, mortgages, loans, and so on are based on either a fixed or a variable interest rate. Assume that fixed interest rates are used throughout this question.
Olivia deposited $800 at her local credit union in a savings account at the rate of 6.2% paid as simple interest. She will earn interest once a year for the next 7 years. If she were to make no additional deposits or withdrawals, how much money would the credit union owe Olivia in 7 years?
$852.68
 
$1,147.20
 
$149.60
 
$1,218.88
 
 
Now, assume that Olivia’s credit union pays a compound interest rate of 6.2% compounded annually. All other things being equal, how much will Olivia have in her account after 7 years?
$849.60
 
$75.57
 
$1,147.20
 
$1,218.88
 
 
Before deciding to deposit her money at the credit union, Olivia checked the interest rates at her local bank as well. The bank was paying a nominal interest rate of 6.2% compounded quarterly. If Olivia had deposited $800 at her local bank, how much would she have had in her account after 7 years?
$81.04
 
$1,230.63
 
$850.77
 
$149.60
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