Question

Christina borrowed $3,000 five years ago and pays a fixed 2 percent interest rate each period on her loan. Which of the following results in lower total interest on her loan over the course of one year?

A. There can be no difference over the year if the interest rate per period is fixed. The rate must be 2% annually.

B. Waiting until the last minute to make her loan payment because she has a high discount rate.

C. Having compounding periods of one month instead of one week.

Answer 1

OPTION A - Christina borrowed $3,000 five years ago and pays a fixed 2 per cent interest rate each period on her loan. IN this situation we need to find out which of the situation will results in the Lower interest rate. having compounding period of one month instead of one week does not really effective as Christina pay fixed interest rate & in option B if she waits for last minute then she needs to pay more interest till that time so it will not result in lower interest. As per given scenario option A be correct that there can be no difference over the year if interest rate per period is fixed and the rate must be 2% annually