A borrower is faced with choosing between two loans. Loan A is available for $75,000 at 10 per- cent interest for 30 years, with 6 points to be included in closing costs. Loan B would be made for the same amount, but for 11 percent interest for 30 years, with 2 points to be included in the closing costs. Both loans will be fully amortizing.

a. If the loan is repaid after 15 years, which loan would be the better choice?

b. If the loan is repaid after five years, which loan is the better choice?

AppendixLO1