Question

Seeking to either borrow or lend money at a given annual compound interest rate or a simple interest rate over a term of 5 years will result in a preference for selecting:

the simple interest rate for the borrowing and the annual compound interest rate for lending money.

the annual compound interest rate for the borrowing and the simple interest rate for lending money.

the annual compound interest rate for both borrowing and for lending money.

the simple interest rate for both borrowing and for lending money.

more information is required to make a decision.

Answer 1

If we earn a simple interest rate, we will earn the same amount of interest every year. Whereas, if we earn a compounded interest rate the sum of amount will grow exponentially. Hence, seeking to either borrow or lend money at a given annual compounded interest rate or a simple interest rate over a tern of 5 years will result in a preference for selecting-

the simple interest rate for borrowing and the annual compounded interest rate for lending money.

This will result in a lower payment for the borrowed amound and a higher interest income for the lent amount.

Do leave an upvote if you find this helpful. If case of any doubt, please let me know in the comment section.