Question

Which of the following is true when comparing two loans for the same amount of money...

Which of the following is true when comparing two loans for the same amount of money at the same interest rate for the same amount of time, but with different payment frequencies?

Group of answer choices

Annual payments are less than the total of a year's worth of monthly payments

Total interest paid in a year for a loan with monthly payments is less than the total interest paid in a year for a loan with annual payments

Total principal paid over the life of a loan with annual payments is greater than the total principal paid for a loan with monthly payments

None of the above

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Homework Answers

Answer #1

In case of monthly payment of loan,interest shall be calculated at reducing balance at the end of every month due to which for each next month interest shall be reduced.But in case of annual payment loan,interest is calculated for the year on higher outstanding balance as compared to monthly payment loan.Accordingly,total interest paid in a year for a loan with monthly payments is less than the total interest paid in a year for a loan with annual payments.

Thus,correct answer is option B.(Total interest paid in a year for a loan with monthly payments is less than the total interest paid in a year for a loan with annual payments)

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