Answer:
a. Loan Q’s finance charge will be $83.73 greater than Loan P’s.
Step-by-step explanation:
<u>Loan P</u>
Monthly payments for a 9-year 5.8% loan for $19,450 are $231.59, so the total repaid is ...
108 payments × $231.59 per payment = $25,011.72
Together with the service charge, the cost of the loan is ...
$25,011.72 + 925.00 - 19,450 = $6,486.72
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<u>Loan Q</u>
Monthly payments for a 10-year 5.5% loan for $19,450 are $211.08, so the total repaid is ...
120 payments × $211.08 per payment = $25,329.60
Together with the service charge, the cost of the loan is ...
$25,329.60 +690.85 -19,450 = $6,570.45
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Difference of charges
The cost of Loan Q exceeds that of Loan P by ...
$6,570.45 -6486.72 = $83.73 . . . . . matches choice A
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The payment values here were computed using a financial calculator. They can be found using the TVM Solver of a graphing calculator (TI-84), or by any spreadsheet. A number of web sites will also calculate loan payment values, or you can use the formula in your text to compute them yourself.
