Consider this case: Clancy and Smith Corp. needs to take out a one-year bank loa
ID: 2734885 • Letter: C
Question
Consider this case: Clancy and Smith Corp. needs to take out a one-year bank loan of $600, 000 and has been offered loan terms by two different banks. One bank has offered a simple interest loan of 9% that requires monthly payments. The loan principal will be paid back at the end of the year. Another bank has offered 6% add-on interest to be repaid in 12 equal monthly installments. Based on a 360-day year, what will be the monthly payment for each loan for November? Choose the answer that best evaluates the following statement: Industrialization Automation Co. needs to borrow $10, 000, 000. The company has been offered both simple interest and add-on interest loans. The add-on interest loan has a significantly lower interest rate than the simple interest The company should accept the add-on interest loan, because it will be paying less money in interest due to the lower interest rate. The company needs to evaluate more factors than just the interest rate before deciding which type of loan it should accept.Explanation / Answer
Loan amount = 600000
Time = 1 month/ 30 days (November)
Simple interest monthly payment = 600000 * 9% * 30/360
= $4500
Add on interest monthly payment = $600000 * (1+0.06) * 30 / 360
= $53000
B) The company needs to evaluate more factors than just the interest rate before deciding which type of loan it should accept