Posted by Tracy on Monday, January 14, 2008 at 5:23pm.
Subjects
Art
Business
Computers
English
Foreign Languages
Health
Home Economics
Mathematics
Music
Physical Education
Science
Social Studies
Features
Contribute
Download
Experts
Forum
Job Openings
Homework Tips
Libraries.Jiskha
Link to Us
Reference
School Supplies
Search
Homework Help Forum: Business Math
Current Questions | Post a New Question | Answer this Question | Further Reading
Posted by Tracy on Monday, January 14, 2008 at 5:23pm.
Terry has an 18-month installment loan for $1,700 at 12% annual interest. Interest is compunded using the Rule of 78. Terry decides to pay back the loan at the end of the first month.
1. What is the total finance charge on the loan?
The answer is $306, but I don't see how you get that.
2. What is the unearned finance charge, and what is needed to repay the loan?
Simple interest total:
Interest = rate x Time x Principal
.........= .01..x..18..x...1700 = $306.
Sum of months = n(n + 1)/2 = 18(19)/2 = 171
Month 1 - I = 306(18/171) = $32.21
Month 2 - I = 306(178/171) = $30.42
Month 3 - I = 306(16/171) = $28.63
Month 17 - I = 306(2/171) = $3.58
Month 18 - I = 306(1/171) = $1.79
Interest plot is essentially a straight line making the total interest equal to I = (32.21 + 1.79)/2 = 17(18) = $306.
Total outlay to repay the loan = 1700 + 306 = $2006.
The monthly payment for a conventionsl loan would be
R = 1700(.01)/[1 - (1.01)^-18] = $103.67.
Total outlay = 133.67(18) = $1866.05 for a total interest payment of $166.06.
The rule of 78 loan approach cost $139.95 more.
Related Questions
Business Finance - Cassandra is repaying an installment loan of $3500 with 20 ...
eco - Suppose a person pays $80 of annual interest on a loan that has a 5 ...
math - what formula would i use to solve for this: Loan Interest A developer ...
Finance - Rancher Rick purchased an additional 80 acres of hay ground to produce...
math using rule 78 - a loan for $400 is to be paid off in 66 months witha ...
MAth - 1. John’s loans for his business total $155,000. One of the loans is...
Business finance - In a discount interest loan, you pay the interest payment up...
business math - Term of Loan/Date of Loan using Banker's Rule? I need helps ...
math - the total amount of interest on this loan of $6000 for 150 days is $210....
Finance - Sauerfood company has decided to buy a new computer system with an ...
For Further Reading
