Saturday

October 25, 2014

October 25, 2014

Posted by **Tracy** on Monday, January 14, 2008 at 5:23pm.

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?

I don't know how to go about doing this at all.

- Business Math -
**tchrwill**, Monday, January 14, 2008 at 7:50pmSubjects

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.

**Answer this Question**

**Related Questions**

math - what formula would i use to solve for this: Loan Interest A developer ...

eco - Suppose a person pays $80 of annual interest on a loan that has a 5 ...

Math - Maya bought a car for $15,000. To pay for it, she took a bank add-on ...

math - you borrow $1200 from a bank that bank charges 9.5% simple annual ...

Business finance - In a discount interest loan, you pay the interest payment up...

math - Sonja needs to borrow $2,251 to pay for her college classes. Sallie Mae ...

Math - I take out a loan for $10,000.00 and the interest rate is 6.3% APR. If I ...

business math - Term of Loan/Date of Loan using Banker's Rule? I need helps in ...

business math - Janet Home went to Citizens Bank. She borrowed $7,000 at a rate ...

math - A man borrows $50,000 towards the cost of a house. Compound interest is ...