Jumma Marzooq has obtained a short-term loan from First Cairo Bank. The loan matures in 180 days and is in the amount of US$45,000. Jumma needs the money to cover startup costs in a new business. He hopes to have sufficient backing from other investors by the end of the next 6 months. First Cairo Bank offers Jumma two financing options for the US$45,000 loan: a fixed-rate loan at 2.5 percent above prime rate, or a variable-rate loan at 1.5 percent above prime.

Currently, the prime rate of interest is 6.5 percent, and the consensus forecasts of a group of mortgage economists for changes in the prime rate over the next 180 days are as follows: 60 days from today the prime rate will rise by 0.5 percent; 90 days from today the prime rate will rise another 1 percent; 180 days from today the prime rate will drop by 0.5 percent. Using the forecast prime rate changes, answer the following questions.

a. Calculate the total interest cost over 180 days for a fixed-rate loan.

b. Calculate the total interest cost over 180 days for a variable-rate loan.

c. Which is the lower-interest-cost loan for the next 180 days?