Companies frequently borrow money under an arrangement that requires them to make periodic payments of “interest only” and then pay the principal all at once. If Cisco International borrowed

$500,000 (identified as loan A) at 10% per year simple interest and another $500,000 (identified as loan B) at 10% per year compound interest and paid only the interest at the end of each year for three years on both loans,

(a) on which loan did the company pay more interest, and

(b) what was the difference in interest paid between the two loans?

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