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# A business needs a $240,000 loan for one year and has two options to Tags: Show Tags Hide Tags Manager Joined: 14 Apr 2017 Posts: 248 Own Kudos [?]: 268 [8] Given Kudos: 25 Location: India sandeep : sharma Concentration: International Business, Entrepreneurship GPA: 3.9 Intern Joined: 14 Jan 2016 Posts: 4 Own Kudos [?]: 24 [1] Given Kudos: 11 Senior Manager Joined: 15 Jul 2018 Posts: 348 Own Kudos [?]: 478 [1] Given Kudos: 94 GRE Forum Moderator Joined: 02 Nov 2016 Posts: 14019 Own Kudos [?]: 38741 [3] Given Kudos: 5866 GPA: 3.62 Re: A business needs a$240,000 loan for one year and has two options to [#permalink]
3
Kudos
Official Explanation

First, find the interest rate at which the two options have equal total interest payments.

Interest on Loan 1:

5% of $240,000 = 0.05 ×$240,000 = $12,000 Alternatively, find 10% and divide by 2 to get 5%: 10% of 240,000 = 24,000. Half of that is 12,000. Interest on Loan 2: 4% of$190,000 = 0.04 × $190,000 =$7,600

r% of $$50,000=\frac{r}{100}×50,000=500r$$

For the total interest payment on Option 1 to be equal to the total interest payment on Option 2, the sum of the interest on the $50,000 loan and the interest on the$190,000 loan must be equal to the interest payment on the $240,000 loan. Set up that equation and solve. 500r + 7,600 = 12,000 500r = 12,000 – 7,600 500r = 4,400 r = 8.8 Next, calculate the interest rate at which the interest payment on the$190,000 loan (at 4%) would be equal to twice the interest payment on the $50,000 loan (at r%). Reuse the numbers already calculated during the first half of this problem. interest on 190k loan = 2(interest on 50k loan) 7,600 = 2(500r) 7,600 = 1,000r r = 7.6 Column 1: The correct answer is (E). Column 2: The correct answer is (D). Non-Human User Joined: 09 Sep 2013 Posts: 34817 Own Kudos [?]: 877 [0] Given Kudos: 0 Re: A business needs a$240,000 loan for one year and has two options to [#permalink]
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Re: A business needs a \$240,000 loan for one year and has two options to [#permalink]
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