Question

Use figure 8.1. Corey Griffin obtained an installment loan of $1000. The annual percentage rate is 8 percent. He must repay the loan in 18 months. What is the finance charge?
A. $63.80
B. $75.10
C. $70.00
D. $78.20

Answer 1

Answer:

• Option A. $63.80

Explanation:

The figure contains a table with the monthly payment on a a $100 loan in function of the number of months (term in months) and the annual percent rates (8.00%, 10.00%, 12.00%, 14.00%).

You find the monthly payment on an $100 loan for the terms of the installment loan obtained by Corey Griffin, in the cell resulting from the intersection of the row for 18 months and the column for the rate of 8.00%. That is 5.91.

The meaning of that value is that it must repaid $5.91 monthly, per each $100 of loan.

Hence, for the $1,000, you compute the monthly payment in this way:

• Monthly payment = $1,000 × ( $5.91 / $100) = $59.10

Now, to find the finance charge, compute the total payments and subtract the amount of the loan:

• Total payments = 18 months × $59.10 / month = $1,063.80

• Finance charge = Total payments - loan amount = $1,063.80 - $1,000 = $63.80

Thus, the finance charge is $63.80 (option A).