Question

Maria is going to take out a loan with a principal of $19,700. She has narrowed down her options to two banks. Bank M charges an interest rate of 7.1%, compounded monthly, and requires that the loan be paid off in five years. Bank N charges an interest rate of 7.8%, compounded monthly, and requires that the loan be paid off in four years. How would you recommend that Maria choose her loan?

a.
Bank M offers a better loan in every regard, so Maria should choose it over Bank N’s.
b.
Maria should choose Bank M’s loan if she cares more about lower monthly payments, and she should choose Bank N’s loan if she cares more about the lowest lifetime cost.
c.
Maria should choose Bank N’s loan if she cares more about lower monthly payments, and she should choose Bank M’s loan if she cares more about the lowest lifetime cost.
d.
Bank N offers a better loan in every regard, so Maria should choose it over Bank M’s.

Answer 1

Answer is B I am 2000% sure.

Step-by-step explanation:

Answer 2

B

Step-by-step explanation:

To answer this question we have to make comparisons between the two proposals.

1) Bank M

19700

7.1% compounded monthly = 86 annualy

5 years Maturity

Performing calculations, the outcomes:

Monthly Payment $391.01

Time Required to Clear Debt 5.00 years

60 Payments total of $23,460.82

Total Interest $3,760.82

2) Bank N

19700

7.8%

4 years maturity.

Monthly Payment $479.09

48 Payments total of $22,996.19

Total Interest $3,296.19

Both proposals consider a Constant Amortization System, with constant monthly payments. Notice also that Bank N offer lower total interest despite a higher monthly payment, and Bank M offer higher interest yield and lower monthly payment.

.