quiz\nquestion 6 of 8\naisha needs a loan to finance her latest startup. she wants a loan with the lowest…
quiz\nquestion 6 of 8\naisha needs a loan to finance her latest startup. she wants a loan with the lowest overall interest costs. shes considering a 3 - year loan with an 8% fixed interest rate or a 5 - year loan with a 6% fixed interest rate. why would aisha pick the 3 - year loan?\nselect a response.\nit has a lower total cost.\nit has a smaller monthly payment.\nit has a lower interest rate.\nit has a higher loan amount.
Answer
Explanation:
Step1: Calculate interest for 3 - year loan
Let the loan amount be $P$. The simple - interest formula is $I = Prt$, where $P$ is the principal amount, $r$ is the annual interest rate, and $t$ is the time in years. For a 3 - year loan with an 8% ($r = 0.08$) interest rate, $I_1=P\times0.08\times3 = 0.24P$.
Step2: Calculate interest for 5 - year loan
For a 5 - year loan with a 6% ($r = 0.06$) interest rate, $I_2=P\times0.06\times5=0.3P$.
Step3: Compare total costs
Since $I_1 = 0.24P$ and $I_2 = 0.3P$, and the total cost of a loan is the sum of the principal and the interest, for the same principal amount $P$, the 3 - year loan has a lower total cost (principal + interest). The monthly payment for the 3 - year loan is likely higher due to the shorter repayment period. The 3 - year loan has a higher interest rate. There is no information suggesting a higher loan amount for the 3 - year loan.
Answer:
It has a lower total cost.