Question

I need help to understand why there is a 12 in the formulaThe repayment parameters of the $10,000 loan Trey qualifies for are given as follows; = $185.48 × 5 × 12 = $11,128.8While the total repayment amount for the 10 year loan term, '' is given as follows; = $102.63 × 10 × 12 = $12,315.6The difference between the total repayment for the 10-year term and the 5-year term loan, - , is given as follows; - = $12,315.6 - $11,128.8 = $1,186.80Therefore, the 5-year term is lower than the 10-year term by $1,186.80

Answer 1

Given the monthly payments for each one of the two terms, we can calculate the total repayment of the 5-year and 10- years term.

As for the 5-year plan,

`\begin{gathered} 5\cdot12=60\to\text{months in 5 years} \\ 60\cdot185.48=11128.8 \end{gathered}`

Similarly, for the 10-year plan,

`\begin{gathered} 10\cdot12=120\to\text{months in 10 years} \\ 120\cdot102.63=12315.6 \end{gathered}`

Finally, the difference between these two quantities is

`12315.6-11128.8=1186.8`

The answer is 'The 5-year term would be 1186.80 lower', option B