A local finance company, Stockton Prudential Finance, Inc., quotes a 10 % interest on one-year loans. You want to borrow $ 40,000 today. The company gives you two options.

Option 1: since the interest you will pay is .10 x $40,000 = $4000 and you must repay $44,000 in one year, you can pay $44,000/12 = $ 3,666.66 per month over the next 12 months.

Option 2: since the interest you owe is $ 4000 on your loan, the company will deduct $ 4000 from the loan upfront and will

give you $ 36,000. You must pay back $ 40,000 next year. Assume annual compounding.

Please explain step by step with categories e.g PMT, PV, FV, EAR, etc