Question

Use the​ add-on method for determining interest on a loan of ​$​,2540 with an annual rate of 6​% and a term of 4 years.​ Then, determine the annual interest rate during the last month of the loan.

Answer 1

Answer:

Part A

The interest on the loan is $609.6

Part B

The interest amount on the last month is $12.7

Step-by-step explanation:

Part A

With the add-on interest method, the interest on the loan is added before the monthly payment is determined

The monthly payment, A = (P × I)/n

Where;

A = The amount payed monthly

P = The principal amount borrowed = $2,540

I = The interest on the loan = P × R × T

R = The interest on the loan = 6%

T = The duration of the loan = 4 years

n = The number of monthly payment = 4 × 12 = 48

Plugging in the variables to the simple interest formula, we get;

I = $2,540 × 6/100 × 4 = $609.6

The interest on the loan, I = $609.6

Part B

The monthly payment is therefore;

∴ A = ($2,540 + $609.6)/48 = $65.61$\overline 6$

The amount payed as interest on the last month, $I_m$, is given as follows;

$65.61$\overline 6$ - $2,540/48 = $12.7

The amount payed as interest on the last month = $12.7