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

(a) Use the money in your savings account or

(b) borrow the money from the bank at 6 percent, leaving the money in the savings account.

Your financial analyst suggests that solution

(b) is better. His logic: The sum of the interest paid on the 6 percent loan is lower than the interest earned at the same time on the $25,000 deposit. His calculations are illustrated in the following spreadsheet. Show that this logic is wrong. (If you think about it, it couldn’t be preferable to take a 6 percent loan when you are getting 5 percent interest from the bank.

However, the explanation may not be trivial.)

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1 2 Interest earned 3 Interest paid 4 Initial deposit 5 6 A Year 7 8 9 10 11 12 13 14 15 16 E F B D EXERCISE 14, financial analyst's calculations 5% 6% 25.000 THE 6% LOAN =PMT($B$3.2.-$B$4) Principal at Payment at Repayment Interest paid beginning of year end of year of principal 25,000.00 2 12.864.08 13,635.92 13,635.92 1,500.00 Total interest paid 771.84 2,271.84 12,135.92 =C8-D8 12,864.08 Savings Account In savings Year account at End-year interest In account at end of year beginning of year earned 25,000.00 1,250.00 26,250.00 26,250.00 1,312.50 27,562.50 Interest earned 2.562.50