Miles and Nick each separately apply for and receive loans worth $5,000 apiece. Miles has a very good credit score, so his loan has an APR of 7.75%, compounded monthly. Nick’s credit score is rather low, so his loan has an APR of 13.10% interest, compounded monthly. If both of them repay their loans over a four year period, making equal monthly payments based on their own loan, how much more will Nick have paid than Miles? (Round all dollar values to the nearest cent.)

a.$619.68

b.$267.50

c.$1,609.57

d.$1,070.00

Question

Miles and Nick each separately apply for and receive loans worth $5,000 apiece. Miles has a very good credit score, so his loan has an APR of 7.75%, compounded monthly. Nick’s credit score is rather low, so his loan has an APR of 13.10% interest, compounded monthly. If both of them repay their loans over a four year period, making equal monthly payments based on their own loan, how much more will Nick have paid than Miles? (Round all dollar values to the nearest cent.)

a.$619.68

b.$267.50

c.$1,609.57

d.$1,070.00

dmndlife24 · Answer

Miles:
7.75% (0.0775) x 5,000 = $387.5 x 4 = $1550 (over four year period)
Nick:
13.10% (0.131) x 5,000 = $655 x 4 = $2620

$2620 - $1550 = $1,070 (rounded to nearest cent)
So the answer is D.