Question

Bill is considering taking out a loan. He estimates that he can afford monthly payments of $375 for 10 years in order to support his loan. He finds that, with an APR of 6.5% compounded monthly, he can take a loan of $33,025.69.


Assuming that Bill's monthly payment and the length of the loan remain fixed, which of these statements is true about the size of the loan Bill could take if he received a different APR?


A. If the interest rate were 7.4%, the amount of the loan that Bill is considering taking out would be more than $33,025.69.

B. If the interest rate were 6.8%, the amount of the loan that Bill is considering taking out would be less than $33,025.69.

C. If the interest rate were 6.4%, the amount of the loan that Bill is considering taking out would be less than $33,025.69.

D. If the interest rate were 7.2%, the amount of the loan that Bill is considering taking out would be more than $33,025.69.

Answer 1

For the same payment and term, the lower the interest rate, the more the loan can be. The opposite is also true. The appropriate selection is ...
  B. If the interest rate were 6.8%, the amount of the loan Bill is considering taking out would be less than $33,025.69.


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At 6.8%, Bill can afford a loan of $32,585.93.