#3 - MetroBank made loans to ten small companies, in amounts

[Kdup]

Hi Powerscore,

So.. Question 3 was a bit wordy for me at first. I'm trying to understand how "E' is not the correct answer. I identified the question type, resolve the paradox. Then I isolated the two statements that I needed to find middle ground for. Statement 1. The scheduled monthly loan payment increased slightly each month over the five year term of the loan. Statement 2. t The average payment received decreased by the end of the five year term. I then paraphrased and thought to myself.. okay... if they are paying back a loan it must decrease over time. so it is possible that the payment of the loan overtime can decrease as the companies pay off the loan. So, form that analysis, I easily eliminated A,B, and C. I was then left with D and E. And unfortunately selected "E" .. I am seeing that with a lot of questions in LR I can easily eliminate answers until there are two. Then everything tends to get challenging from there and then I spend too much time debating back and forth with myself and the answer.

[Jennifer Janowsky]

Hi! You are right that the question type is Resolve the Paradox. And, you are correct that the amount they owe decreases over time. However, the question specifically states that the individual loan amount paid each month is increased over time: "the scheduled monthly loan payment increased slightly each month over the five-year term of the loan." So, although this would be a good explanation, the question specifically states that it does not happen, leaving D as the answer. You are right that the LSAT often leaves two good contenders in order to confuse!

[cmnoury1221]

Hello,
Is answer choice D correct here because D distinguishes between the "average payment" and those who "borrowed the largest amounts" ? Those who got a larger loan paid back while those receiving smaller loans were not able to pay as quickly?

Thanks!

[Dave Killoran]

Hi,

Yes, the payment of some of the larger loans as it affects the average is critical, although the presence of the "the three that had borrowed the largest amounts" isn't really necessary, and is there to make this answer even clearer.

The key question is: how could a program that starts with each of 10 individual payments getting bigger every month somehow have a lower total average monthly payment after 5 years than at the start? Mathematically, if all else stays the same, it can't happen because every single month each loanee pays more. Because of that, we know immediately that not everything stayed the same.

So, what could have explained it? The simplest explanation is that we no longer have 10 loans out. To make this clear, let's use an example that doesn't exactly conform to the stimulus, but will make the math here hopefully as understandable as possible:

• Let's say you started with 10 loans with an average monthly payment of $50,000. This was made up of 5 loans of $10,000 per month and 5 loans of $90,000 per month (so, 10 loans of $500,000 per month total, for an average of $50,000 per loan).
  
  Over the following three years, 5 of the loanees paid their loans off. Let's say that all 5 were the large loans (doesn't have to be that way, but some have to be big), and were the $90,000 each loans. Losing those 5 big loans leaves you in a situation where three years later you only have 5 loans out for an average of $10,000 (total loan amount is now $50K). This example assumes payments remain the same, but it shows how the monthly average could be lowered over three years.

Now, in this question we know the monthly payment rises slightly each month, and so the loan average going down is impossible if all things stay the same. The path to getting the average down? Remove some of the bigger loans. That's what (D) does, and it makes the explanation even stronger that it was the three largest. Does it have to be the three largest? No, some could be smaller, but at least one or two has to be substantial.

Please let me know if that helps. Thanks!

[lauren81390]

Can we elaborate more on why E is wrong?

[Adam Tyson]

Answer E is about "some" loans made by the bank, lauren81390, but the paradox is about these 10 loans, which all have increasing payments rather than decreasing payments. Answer E is irrelevant because it's talking about some other loans instead of the loans that are the subject of the stimulus.