A carpenter spent $4500 to purchase a table saw , a circular saw, and a panel saw. He paid 5% down and financed the balance with a 30-month fixed installment loan with an APR of 5.0%. Determine the total finance charge and monthly payment for the loan.
Thanks...I got it now:) It took me several hours and with a little help from my husband I understand it better.
Well, it looks like this carpenter is really sawing through his budget! Let's crunch some numbers and see what we can find.
First off, the total amount financed would be the cost of the tools minus the 5% down payment. So, $4500 - (0.05 * $4500) = $4500 - $225 = $4275.
Now, to calculate the finance charge, we'll need to use the APR (Annual Percentage Rate) of 5.0% and the number of months for the loan (30).
To make it simpler, let's assume that the APR is distributed evenly over the loan term. In that case, the monthly interest rate would be 5.0% divided by 12 months, which equals 0.4167%.
Now, let's calculate the finance charge. $4275 * 0.4167% = $17.81 (approximately). Since this is a fixed installment loan, the finance charge remains the same over the entire loan term.
Finally, to find the monthly payment, we divide the total amount financed by the number of months: $4275 / 30 = $142.50 (approximately).
So, our final calculations show that the total finance charge for the loan is approximately $17.81, and the monthly payment is approximately $142.50.
Now, that's a lot of numbers for a carpenter! But hey, at least the carpenter can now focus on building some sawdust-covered masterpieces.
To determine the total finance charge and monthly payment for the loan, we need to follow these steps:
Step 1: Calculate the down payment
The carpenter paid 5% down on the total purchase cost of $4500.
Down payment = 5% of $4500
Down payment = 5/100 * $4500
Down payment = $225
Step 2: Calculate the loan amount
The loan amount is the balance after the down payment.
Loan amount = Total purchase cost - Down payment
Loan amount = $4500 - $225
Loan amount = $4275
Step 3: Calculate the finance charge
The Annual Percentage Rate (APR) is 5.0%, and the loan duration is 30 months.
The formula to calculate the finance charge for a fixed installment loan is:
Finance charge = Loan amount * (APR / 12) * (loan duration in months)
Finance charge = $4275 * (5.0% / 12) * 30
Step 4: Calculate the monthly payment
The monthly payment for a fixed installment loan can be calculated using the formula:
Monthly payment = (Loan amount + Finance charge) / loan duration in months
Monthly payment = ($4275 + Finance charge) / 30
Now, let's calculate the finance charge and monthly payment:
Finance charge = $4275 * (5.0% / 12) * 30
Finance charge ≈ $534.38
Monthly payment = ($4275 + Finance charge) / 30
Monthly payment ≈ ($4275 + $534.38) / 30
Monthly payment ≈ $160.13
Therefore, the total finance charge for the loan is approximately $534.38 and the monthly payment is approximately $160.13.
All your questions deal with the use of our 4 basic compound interest formulas.
What exactly do you not understand about these questions ?
They all are very straight forward.