=+LG 3 P16–10 Unsecured sources of short-term loans Lindsey Shaw requires a short-term loan of

$55,000 to buy a new house. She will also use a portion of the money for renovations to the house. A bank is willing to lend it for a 180-day period. Her bank manager discusses two loan proposals with her. She has to decide whether to choose a fixed-rate loan at 2% above prime or a variable-rate loan at 1% above prime.

The prime rate of interest is 6%. A group of economists predict the following:

Sixty days from today, the prime rate will increase by 0.25%; 90 days from today, it will increase by another 0.5%; and 180 days from today, the prime rate will drop by 1.5%. (Note: Use a 365-day year.)