Part II: Case Study on SIMPLE INTEREST & DISCOUNTING $(10$ marks$)$

You are a financial advisor working with a client who is considering taking out a loan to purchase new equipment for their small business. The client needs to understand the concepts of simple interest and discounting to make an informed decision about the loan options available to them.

Loan Options:

Option A: The client can borrow $$10,000$ at a simple interest rate of $8\%$ per annum for a period of $2$ years.

Option B: The client can borrow $$10,000$ at a discount rate of $6\%$ for a period of $2$ years.

Questions:

Simple Interest Calculation $($Option A$)$:

Calculate the total amount of interest the client will pay over the $2-$year period for Option A$.$

Determine the total amount the client will repay at the end of the loan term.

Discounting Calculation $($Option B$)$:

Calculate the discount amount for Option B based on the discount rate and loan amount.

Determine the net amount the client will receive upfront after discounting the loan.

Comparison of Total Repayment:

Compare the total repayment amount for Option A $($simple interest$)$ and Option B $($discounting$).$

Analyze the differences in total repayment and the implications for the client's finances.

Interest Rate Analysis:

Evaluate the effective interest rate for Option A and the effective interest rate after discounting for Option B$.$

Discuss the significance of the interest rate in terms of the client's cost of borrowing.

By addressing these questions and guiding the client through the analysis of loan options, you can assist them in understanding the concepts of simple interest and discounting and making a well$-$informed decision about financing their business equipment purchase.