33,457 views
45 votes
45 votes
Logan is taking a loan out to buy a $4000 right for his wife. He has two finance options listed below. Which should he choose? Option a- a five year loan with a %7 interest rate compounded quarterly l. Option b- an eight year loan with a 5.5% interest rate compounded annually

User David Nichols
by
2.7k points

1 Answer

24 votes
24 votes

Answer:

The most convenient option for Logan is A, since he will pay a lower amount than if he chose option B.

Explanation:

Given that Logan is taking a loan out to buy a $ 4000 right for his wife, and he has two finance options, Option A, which gives a five year loan with a% 7 interest rate compounded quarterly, and Option B, which gives an eight year loan with a 5.5% interest rate compounded annually, to determine which option should be chosen, the following calculation must be performed:

Option A:

X = 4,000 (1 + 0.07 / 3) ^ 5x3

X = 5,653.49

Option B:

X = 4,000 (1 + 5.5 / 1) ^ 8x1

X = 6,138.75

Thus, the most convenient option for Logan is A, since he will pay a lower amount than if he chose option B.

User JDKot
by
3.1k points