Question 6 • 2025-2026 GSP Mathematical Reasoning for Decision Making
Maria is going to take out a loan with a principal of $19,700. She has narrowed down her options to two banks. Bank M charges an interest rate of 7.1%, compounded monthly, and requires that the loan be paid off in five years. Bank N charges an interest rate of 7.8%, compounded monthly, and requires that the loan be paid off in four years. How would you recommend that Maria choose her loan?
Answer
A
Bank M offers a better loan in every regard, so Maria should choose it over Bank N’s.
B
Maria should choose Bank M’s loan if she cares more about lower monthly payments, and she should choose Bank N’s loan if she cares more about the lowest lifetime cost.
C
Maria should choose Bank N’s loan if she cares more about lower monthly payments, and she should choose Bank M’s loan if she cares more about the lowest lifetime cost.
D
Bank N offers a better loan in every regard, so Maria should choose it over Bank M’s.
Explanation
Using the standard fixed-payment loan formula, Bank M’s monthly payment is about $390, while Bank N’s is about $480. Bank M therefore has the lower monthly payment. But the estimated total paid is about $23,400 with Bank M and $23,020 with Bank N, so Bank N has the lower lifetime cost. Choose Bank M for lower monthly payments or Bank N for the lowest total cost.
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