Show that the given logic is wrong

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Reference no: EM131453648

Question: You currently have $25,000 in the bank, in a savings account that draws 5% interest. Your business needs $25,000, and you are considering two options:

(a) Use the money in your savings account.

(b) Borrow the money from the bank at 6%, leaving the money in the savings account.

Your financial analyst suggests that solution (b) above is better. His logic: The sum of the interest paid on the 6% loan is lower than the interest earned at the same time on the $25,000 deposit. His calculations are illustrated below. Show that this logic is wrong. (If you think about it, it couldn ' t be preferable to take a 6% loan when you are getting 5% interest from the bank. However, the explanation for this may not be trivial.)

Reference no: EM131453648

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