Consider this case: Chez Quis Inc. needs to take out a one-year bank loan of $500, 000 and has been offered loan terms by two different banks. One bank has offered a simple interest loan of 8% that requires monthly payments. The loan principal will be paid back at the end of the year. Another bank has offered 5% add-on interest to be repaid in 12 equal monthly installments. 

Based on a 360-day year, what will be the monthly payment for each loan for June? 

 

Choose the answer that best evaluates the following statement: 

InputOutzone Inc. always prefers simple interest loans over add-on interest loans because even if the interest rate is higher on the simple interest loan, its monthly payment is lower. 

• The company needs to be sensitive to interest rate differences between loan types and take them into consideration when deciding what type of loan to take out. 
• The company should only accept add-on interest loans when it cannot get simple interest loans.
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Value Simple interest monthly payment Add-on interest monthly payment