00:01
Okay, so let's say that you purchase a house for $650 ,000, but the seller has a second mortgage on it for $100 ,000.
00:13
And you promise to pay the seller the $100 ,000 plus any accrued interest in five years from now.
00:22
And the seller says, okay, that sounds good.
00:25
And he gives you a couple of interest options.
00:29
So first is simple interest at 6 % per year.
00:34
Second is 5 .5 % compounded monthly.
00:41
And third would be 5 .25 % compounded continuously.
00:46
So you need to make a decision on this interest and see which one is the best option.
00:54
So the best option for you would be the one that costs the least.
01:00
So when we're looking at this problem and we're doing it, we don't really care that they paid $650 ,000 for that house.
01:09
Because that doesn't matter that's done with.
01:12
All we care about is this $100 ,000 and what interest is going to be best for that.
01:20
So we're going to use some different formulas for them.
01:25
And i'm going to write down these formulas just at the top here.
01:28
So we have pert.
01:31
A equals p, e to rt.
01:36
And then we have our other interest one, our compounded interest one, r over n to the nt.
01:59
And i don't know why it's not writing anymore.
02:08
And then we have our simple interest formula, or a equals p.
02:13
Times 1 plus r t so let's just figure out let's do them one at the time and we'll find the answers and see which one's best so let's start with our simple interest which would be this bottom formula here so i don't know what a is i know my principal would be a $100 ,000 and plus my rate was 6 % and my time is 5 years.
03:03
So now i'm just going to plug that into my calculator...