Question

Thomas wants a $50,000 small business loan to start his landscaping business. Bank A offers him a 10-year loan at 3.9% interest. Bank B offers him a 5-year loan at 8.1% interest. Which statements are accurate about these options? Select all that apply. The total interest paid for the 5-year loan is $10,462. Thomas pays more over the life of the loan if he takes the 10-year loan. Thomas pays less over the life of the loan if he takes the 5-year loan. The total interest paid for the 10-year loan is $10,462. Thomas pays less over the life of the loan if he takes the 10-year loan. The monthly payments for the 5-year loan are $1,016.20. Thomas pays more over the life of the loan if he takes the 5-year loan. The monthly payments for the 10-year loan are $513.85.

Answer 1

Please refer to below spreadsheet for calculation and answer. Cell reference also provided.

Loan Amount Annual Interest rate Monthly interest rate No. of monthly payment 10-year Loan 50000 3.90% 0.3250% 120 5-year Loan 50000 8.10% 0.6750% 120 60 Amount of monthly payment Total Interest paid Total Amount paid $503.85 $10,462.34 $60,462.34 $1,016.21 $10,972.86 $60,972.86 Correct Statements: The total interest paid for the 10-year loan is $10,462 Thomas pays less over the life of the loan if he takes the 10-year loan The monthly payments for the 5-year loan are $1,016.20 Thomas pays more over the life of the loan if he takes the 5-year loan

Cell reference -

10-year Loan 5-year Loan Loan Amount Annual Interest rate Monthly interest rate No. of monthly payment 50000 0.039 =C4/12 =10*12 50000 0.081 =D4/12 =5*12 Amount of monthly payment Total Interest paid Total Amount paid =PMT(C5, C6,-C3,,0) =C8*C6-C3 =C8*C6 =PMT(D5,D6,-D3,,0) =D8*D6-D3 =D8*D6 Correct Statements: The total interest paid for the 10-year loan is $10,462 Thomas pays less over the life of the loan if he takes the 10-year loan The monthly payments for the 5-year loan are $1,016.20 Thomas pays more over the life of the loan if he takes the 5-year loan 18 20

Hope it will help, please do comment if you need any further explanation. Your feedback would be highly appreciated.

Answer 2

Bank A

10 year loan 3.9%

N = 120

I/Y= 3.9

PV= 50000

PMT= CPT

FV= 0

PMT = 502.24

Bank B

5 year loan 8.1%

N=60

I/Y=8.1

PV=50000

PMT=CPT

FV=0

PMT = 1009.37

a.) The total interest paid for 5 year loan is $10,562

1009.37 * 60 = 60562 , Interest Paid = Total Amount paid - Principal = 60562-50000=10562

b.) Thomas pays 60269 (502.24*120=60269) if he takes 10 year loan which is less than 5 year loan from statement a.

c.)Thomas pays more over the life of loan if he takes 5 year loan.

d.) The total interest paid for over 10 year loan is $10269

e.) Thomas pays less over the time if he takes 10 year loan.

f.) The monthly payments of loan $1009.37

g.) Thomas pays more over the life of 5 year loan.

h.)The monthly payments for 10 year loan plan are $502.24

ACCURATE STATEMENTS ARE:

e and g