SOLUTION: Barry and Steve are good friends. Barry wants to buy a new computer, but he doesn't have the money for it right now. Barry says that he will pay Steve $2,000 in five years if Steve

Question 65757: Barry and Steve are good friends. Barry wants to buy a new computer, but he doesn't have the money for it right now. Barry says that he will pay Steve $2,000 in five years if Steve gives him $1,600 for the computer today.
Steve figures that there's an interest rate of 6% if he were to put the money in a bank instead of lending it to Barry. What are the steps and answer to solving this. Thank you and have a nice day. Gina Kaplan School of Business Unit 7 e guide
Answer by funmath(2933) (Show Source): You can put this solution on YOUR website!
Barry and Steve are good friends. Barry wants to buy a new computer, but he doesn't have the money for it right now. Barry says that he will pay Steve $2,000 in five years if Steve gives him $1,600 for the computer today.
Steve figures that there's an interest rate of 6% if he were to put the money in a bank instead of lending it to Barry. What are the steps and answer to solving this.
I haven't had a business class in quite some time. I am doing this as a simple interest problem, you didn't say whether the bank was compounding interest monthly or anything.
If Steve loans the money to Barry, he will make $2000-$1600=$400
If he makes simple interest on his money, using the formula, , where P=principle, r=rate (in decimal form) and t=time (in years).
P=1600, r=6/100=.06, and t=5
He will make:I=1600(.06)(5)=$480
He will make $480-$400=$80 more if he puts the money in the bank, he's got to decide how important his friendship with Barry is worth.
Happy Calculating!!!!
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