A student takes out a loan with an interest rate of 15.4% per annum, compounded annually. The amortization period is 1 year. If the finance charge is $800.00, what was the principal?
a. $5194.81
C. $5714.29
b. $4675.32
d. $6233.77
Let the principal be P.
The formula for calculating the finance charge is:
Finance Charge = P(1 + r)^1 - P, where r is the interest rate (converted to decimal).
In this case, r = 15.4% = 0.154.
$800 = P(1 + 0.154) - P
$800 = P(1.154) - P
$800 = 0.154P
P = $800/0.154
P ≈ $5194.81
Therefore, the principal was approximately $5194.81.
a. $5194.81