You are looking to borrow some money Loan A has an interest

You are looking to borrow some money. Loan A has an interest rate of 6% with monthly compounding. Loan B has an interest rate of ^% with annual compounding. All else equal, which of the following is true? a. You should choose Loan A because it will have the higher payment. b. You should choose Loan A because it will have the lower payment. c. You should choose Loan B becuase it will have the higher payment. d. You should choose Loan B because it will have the lower payment.

Solution

Correction option is > d. You should choose Loan B because it will have the lower payment.

As monthly compounding rate will demand higher monthly payment hence, you should choose option B because it has annual compounding rate which will eventually ask for lesser monthly payment.

Note: I cannot see interest rate for B loan, I am assuming in both loans we have same interest rate of 6%. There is some typo “^” instead of “6”