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22 February, 15:26

Jackson took out a 6-year loan for $77,000 at an APR of 10.3%, compounded monthly, while Leo took out a 6-year loan for $82,000 at an APR of 10.3%, compounded monthly. Who would save more by paying off his loan 10 years early?

A) Jackson would save more, because he borrowed $5000 more in principal.

B) Jackson would save more, because he borrowed $5000 less in principal.

C) Leo would save more, because he borrowed $5000 less in principal.

D) Leo would save more, because he borrowed $5000 more in principal.

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  1. 22 February, 15:54
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    D) Leo would save more, because he borrowed $5000 more in principal.

    Explanation:

    I guess the question should say who would save more by paying 1 year earlier, since they are 6-year loans, the concept remains the same.

    Leo borrowed $82,000, while Jackson borrowed $77,000. That means that Leo borrowed $5,000 more.

    The more you borrow, the higher the interest payment. If both loans have the same APR 10.3% compounded monthly, then the only difference results from the principal amount. Since Leo pays more interest, if he decides to pay the loan earlier, he will save more money.
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