MTH/216 (50) Quiz: Week 5 Checkpoint This Question: 1 pt 9 of 12 (8 complete) pa

Question

MTH/216 (50) Quiz: Week 5 Checkpoint This Question: 1 pt 9 of 12 (8 complete) payments and fotal loan costs for the following pairs of loan options Assume that both loans are fored rate and have the same closing costs You need a $170,000 loarn. Option 1 a30-year loan at an APR of 8% Option 2: a 15-year loan at an APR of 75% Find the monthly payment for each option. The monthly payment for option 1 is $ The monthly payment for option 2 is S (Do not round until the final answer. Then round to the nearest cent as needed) Find the total amount paid for each option The total payment for option 1 is S The total payment for option 2 is S (Use the answers from the previous step to find this answer Round to the nearest cent as needed) Compare the two options. Which appears to be the better option? O A. Option 2 will always be the better option OB. Option 1 is the better option, but only if the borrower plans to stay in the same home for the entire term of the loan O C. Option 2 is the better option, but only if the borrower can afford the higher monthly payments over the entire term of the loan 0 D. Option 1 will always be the better option Cick to select your answer(s)

Explanation / Answer

Monthly payment = corpus amount * rate / [(1+rate)^n - 1)]

option 1, monthly payment = 170,000 * (.08/12) / [(1+.08/12) ^ (30*12) -1)]

= $ 114.07

option 2, monthly payment = 170000 * (.075/12) / [(1+.075/12) ^ (15*12) -1)]

= $513.42

Total payment in option 1 = 114.07*360 = $ 41065.2

total payment in option 2 = 513.42*180 = $ 92415.6

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