Question

Miles and Nick each separately apply for and receive loans worth $5,000 apiece. Miles has a very good credit score, so his loan has an APR of 7.75%, compounded monthly. Nick’s credit score is rather low, so his loan has an APR of 13.10% interest, compounded monthly. If both of them repay their loans over a four year period, making equal monthly payments based on their own loan, how much more will Nick have paid than Miles? (Round all dollar values to the nearest cent.)

a.
$619.68
b.
$267.50
c.
$1,609.57
d.
$1,070.00

Answer 1

its a

Explanation:

Answer 2

To calculate for the monthly payment for each we need to use a formula for loans with no fees. The monthly payment formula is as follows:

P = (P° x r x (1+r)^N) / ((1+r)^N -1)

where P is the monthly payment, P° is the loan amount, r is the APR, N is the number of monthly payments

Substituting the values given we obtained an amount of $121.48 per month for Miles while $134.39 for Nick. Calculating the total payments we have $5830.84 and $6450.52 for Miles and Nick, respectively. Thus, Nick have paid about $619.68 more than Miles. The answer is A.