The new digital bank "Digiloan" is offering its customers two loan alternatives, both

payable in one payment:

x Loan 1 - An annual percentage rate (APR) of 10%

x Loan 2 - An annual percentage rate (APR) of 8%, and an additional account opening

fee of $200 (not contingent on loan size)

Answer the following questions:

a. Suppose you need $2,000 to buy a car and you would like to take a 4 year loan. Which

loan alternative would you prefer?

b. Suppose you need $6,000 to buy a car and you would like to take a 4 year loan. Which loan alternative would you prefer? Answer: you would prefer loan 1 / Loan 2

c. What would be loan amount (exact size) of a 4 year loan that will make you indifferent between the two loan alternatives? Answer: the loan amount that will make you indifferent between the two loan alternatives is $__

d. Suppose you need a $1,000 for 4 year loan. In addition, suppose that now, if you take loan 1 you will need to pay additional closing fee (at maturity of the loan). Loan 2 remains with the same conditions. What will be the closing fee, which will make you indifferent between the two loans? Answer: the closing fee that will make you indifferent between the two loan alternatives is