simple interest and compound interest

Question

A man borrows a sum of money and agrees to pay $ 4000 at the end of the first year and $4600 at the end of the second year what is the sum ,when the rate of simple interest is 5% p.a?

 

(a)$7550

(b)$7000

(c)$8000

(d)$6500

(e)$7500

Answer 1

$8000. The first year interest is $400 at 5%.  After the first year the principal is reduced by $3600 (4000 payment less applied interest).  This leaves a balance of $4400 which then accrues approximately $200 ($220), which accounts for the 2nd $4600 payment.

Answer 2

4000 + 4600 =8600  

8000 * 5%= 400 1st year interest 8600-4000= 4600 balance

4000 * 5%= 200 2nd year interest 4600-4600= 0 balance

borrowing 8000.00 and paying 5%interest over two years = 8600.00