Niagular Corp. needs to take out a one-year bank loan of $600,000 and has been offered loan terms by two different banks. One bank has offered a simple interest loan of 10% that requires monthly payments. The loan principal will be paid back at the end of the year. Another bank has offered 7% 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 November? (Hint: Remember that November has 30 days.)

	Value
Simple interest monthly payment	a.
Add-on interest monthly payment	b.

a. $ (4,000/ 5,000/ 5,500/ 4750)

b. $ (42,800/ 53,500/ 58,850/ 50,825)

Fitcom Corp. 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.

A. The company should only accept add-on interest loans when it cannot get simple interest loans.

B. 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.