Question: George and Barbara Shrub would like to purchase a large white house and are evaluating their financing options. Bank A offers a 10-year mortgage at

George and Barbara Shrub would like to purchase a large white house and are evaluating their financing options. Bank A offers a 10-year mortgage at 12% annual interest, compounded monthly, with payments made at the end of each month. Bank B is offering a 10-year mortgage at 13% annual interest, compounded annually, with payments made at the end of each year. The purchase price of the white house is $250,000.

1. Use formulas to compute the following amounts:

(a) The monthly payment for the Bank A mortgage.

(b) The annual payment for the Bank B mortgage.

2. Which financing alternative would you advise the Shrubs to select?

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