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 Please select the best answer from the choices provided A B C D.

Answer 1

Nick paid $ 1609.57 more than Miles.

Since Miles and Nick each separately apply for and receive loans worth $ 5,000 apiece, and Miles has an APR of 7.75%, compounded monthly, while Nick's 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, to determine how much more will Nick have paid than Miles, the following calculation must be performed:

• 5000 x (1 + 0.0775 / 12) ^ (4x12) = Miles
• 5000 x 1.0064583 ^ 48 = Miles
• 5000 x 1.3620 = Miles
• 6810.33 = Miles
• 5000 x (1 + 0.1310 / 12) ^ (4x12) = Nick
• 5000 x 1.010916 ^ 48 = Nick
• 5000 x 1.6839 = Nick
• 8419.90 = Nick  
• 8419.90 - 6810.33 = 1609.57

Therefore, Nick paid $ 1609.57 more than Miles.

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