Comparing Loan Costs and Interest

The video tutorial compares two loans with identical terms except for their durations: one is five years and the other is six years. It explains the compound interest formula and demonstrates how to calculate the total cost of each loan. The five-year loan results in a total cost of $12,828, while the six-year loan costs $13,484. The tutorial highlights the impact of loan duration on total cost, emphasizing the importance of understanding financial terms.

What is the only difference between the two loans being compared?

• The length of the loan

• The interest rate

• The principal amount

• The frequency of compounding

Which component of the compound interest formula represents the initial amount of money?

• Compounding frequency

• Annual rate

• Principal

• Number of years

In the compound interest formula, how should the annual interest rate be expressed?

• In decimal form

• As a percentage

• As a fraction

• As a whole number

How many times per year is the interest compounded in this example?

• 12 times

• 4 times

• 24 times

• 6 times

What is the total loan cost for the 5-year loan?

• $12,000

• $10,000

• $13,000

• $12,828

What is the base number used in the power calculation for the 5-year loan?

• 1.00416

• 1.05

• 1.12

• 1.06

How does the total cost of the 6-year loan compare to the 5-year loan?

• It is cheaper

• It is the same

• It is significantly cheaper

• It is more expensive

What is the total loan cost for the 6-year loan?

• $10,000

• $12,828

• $13,484

• $14,000