Question

What is the total finance charge for a $4,250 loan at 13.25% interest compounded monthly for 24 months

Answer 1

First we need to calculate the monthly payment to repay the loan using the formula of the present value of an annuity ordinary which is
Pv=pmt [(1-(1+r/k)^(-n))÷(r/k)]
PV the amount of the loan 4250
PMT monthly payment?
R interest rate 0.1325
K compounded monthly 12
N time 24 months
Solve the formula for PMT to get
PMT=pv÷ [(1-(1+r/k)^(-n))÷(r/k)]
PMT=4,250÷((1−(1+0.1325÷12)^(−24))÷(0.1325÷12))=202.55

Now to find the total finance charge use the formula of
Total finance charge=monthly payment×number of months-the amount of the loan
Total finance charge=
202.55×24−4,250=611.2

So the answer is 611.2

Hope it helps!