Some installment loans include terms that charge a penalty if the borrower pays off the loan earlier than its maturity date. The specific terms can vary so it's important to know if a loan you're considering provides for a prepayment penalty and if it does, what its exact terms are. A common way to compute a penalty is the sum-of-the-digits method. You and your friend recently took out installment loans. Your friend didn't anticipate being able to pay off his loan before its maturity date-until he won a lot of money in the lottery, enough to pay it off today. However, he decided to invest all his winnings as opposed to using some of the winnings to pay back the loan and investing the rest. Whats the most likely reason why? The interest rate on the loan is higher than the rate of return your friend would earn on his investment. His loan contract would use the Rule of 78s to compute interest if your friend paid off the loan before its maturity date. His loan has no prepayment penalty. You expect to pay off your loan before its maturity date, so you made sure that the contract: Provides for the use of the sum-of-the-digits method Provides for the use of the Rule of 78s Does not contain a prepayment penalty clause Computing interest using the sum-of-the-digits method allocates more interest at the beginning of a loan than at the end of the loan. True false