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2 October, 08:35

Ian has the choice of taking out a 25-year loan for $205,000 at 3.2% interest, compounded monthly, or the same loan at 20 years for a higher monthly payment. If he would pay a total of $93,077 in interest on the 25-year loan, how much in total would he pay in interest on the 20-year loan?

A. $93,077

B. Less than $93,077

C. More than $93,077 but less than $205,000

D. $205,000

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Answers (2)
  1. 2 October, 08:40
    0
    B. Less than $93,077
  2. 2 October, 08:47
    0
    Option B is correct.

    Step-by-step explanation:

    we are given that:

    Principal Amount for loan, P = $ 205,000

    Rate for 25-year loan, R = 3.2 % compounded monthly

    Time, T = 25 years.

    Total Amount of interest paid for 25-year loan = $ 93,077

    Rate for 20-year loan, R = 3.2% compounded monthly

    Time, T = 20 years.

    Monthly installments in 20-year loan is more than 25-year loan.

    There is 5-year gap in time period of both loan.

    Interest is compounded monthly means in 25-year loan Ian will pay for 60 monthly installment more than 20-year loan.

    So, this implies that Total interest amount for 20-year loan will be less than total interest amount for 25-year loan instead of higher monthly installments.

    Therefore, Option B is correct.
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