PFIN 5th Edition by Randall Billingsley,Lawrence Gitman,Michael Joehnk

Exercise 6

Comparing payments and APRs of financing alternatives. Because of a job change, Don Whitmore has just relocated to the Southeastern United States. He sold his furniture before he moved, so he's now shopping for new furnishings. At a local furniture store, he's found an assortment of couches, chairs, tables, and beds that he thinks would look great in his new, two-bedroom apartment; the total cost for everything is $6,400. Because of moving costs, Don is a bit short of cash right now, so he's decided to take out an installment loan for $6,400 to pay for the furniture. The furniture store offers to lend him the money for 48 months at an add-on interest rate of 6.5 percent. The credit union at Don's firm offers to lend him the money-they'll give him the loan at a simple interest rate of 6 percent, but only for a term of 24 months.
a. Compute the monthly payments for both of the loan offers.
b. Determine the APR for both loans.
c. Which is more important: low payments or a low APR? Explain.