Answer: Choice A
Loan A has the lower monthly payment
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Explanation:
Loan A is at a rate of 6.9% over 5 years. The table says that if you borrowed $100 at this interest rate and time period, then the monthly payment would be $1.98 per month.
However, you are borrowing $17,601 which is 176.01 times greater than 100 since (17601)/(100) = 176.01
So 1.98*176.01 = 348.4998 = 348.50 is the monthly payment of loan A.
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Meanwhile, loan B has an interest rate of 8.9% and lasts for 3 years. Use the table to see that borrowing $100 at this rate and time means the monthly payment is $3.18
The multiplier this time is 162.90 because (16290)/(100) = 162.90
Therefore, 162.90*3.18 = 518.022 = 518.02 is the monthly payment of loan B.
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To summarize, we have these monthly payments
- loan A monthly payment = $348.50
- loan B monthly payment = $518.02
Loan A has the lower monthly payment
