Question

Question 1 of 44Chico is considering taking out a 14-year loan with monthly payments of $185at an APR of 2.7%, compounded monthly, and this equates to a loan of$25,857.12. Assuming that Chico's monthly payment and the length of theloan remain fixed, which of these is a correct statement?A. If the interest rate were 2.9%, the amount of the loan that Chico isconsidering would be more than $25,857.12B. If the interest rate were 3.1%, the amount of the loan that Chico isconsidering would be more than $25,857.12C. If the interest rate were 2.5%, the amount of the loan that Chico isconsidering would be less than $25857.12.D. If the interest rate were 3.3% the amount of the loan that Chico isconsidering would be less than $25.857.12

Answer 1

We have a loan with a period of 14 years, monthly payments of $185 and an APR of 2.7% compounded monthly.

That equates to a loan of $25,857.12.

We have to check the statements:

A. In the case that the interest rate was higher (2.9% instead of 2.7%), the amount of the loan with the same period and payments should be lower.

This is because, for the same amount of the loan, we should be paying a higher monthly amount if the interest rate is higher.

NOTE: for an interest rate of 2.9%, the amount of the loan would be $25,519.54.

Then, this statement is false.

B. In this case, we increase the rate even more (to 3.1%), so the amount of the loan would be even lower than in case A.

NOTE: it would be $25,188.05.

This statement is false.

C. In this case, the interest rate is less than 2.7%, so the amount of the loan would be higher ($ 26,200.91).

This statement is false.

D. In this case, the interest rate is higher than 2.7%, so the amount of the loan will be less.

This statement is