You are taking out a oneyear $8000 loan, the proceeds of which you will use to pay off a creditcard

debt that has an exorbitant interest rate attached to it. Your junior loan officer is brandnew to the industry and has

never taken even one Finance course. Either loan can be repaid with endofmonthly payments. The HighTotalInterest

Option accrues interest at 0.45% (or 0.0045) per month. The LowTotalInterest Option has an APR of 6.00%, with

interest compounding monthly. The loan officer shows you the following two repayment schedules and thus encourages

you to take the Low Option because your total payments are lower under that option. (a) Using the two payment

schedules below, calculate total interest paid for each of the loans. The equation for total interest is simply the

sum of payments minus the initial (upfront) loan amount. (b) Based on the fundamental principle of time value of

money and supported by any math that would be useful, explain whether you, as a wealthmaximizing individual,

agree with the loan officers recommendation, as well as why. (part a is worth 1 pt. and part b is worth 4 pts.)

Option 1 2 3 4 5 6 7 8 9 10 11 12 Sum

High 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 8442.85 8442.85

Low 688.53 688.53 688.53 688.53 688.53 688.53 688.53 688.53 688.53 688.53 688.53 688.53 8262.38