Question

Determine the finance charge on a $6,500 loan with an interest rate of 9. 5% compounded monthly over 36 months. A. $27. 65 b. $208. 21 c. $995. 56 d. $7,495. 56.

Answer 1

The amount of finance charges for the loan amount of $6,500 is $17.15

The finance charge is the extra amount for holding the loan amount until the maturity period. It is mostly the interest amount paid on the entire loan amount.

Computation:

Given,

$P$ Principal Amount =$6,500

$i$ Interest rate =9.5%

$n$ Period of compounding =36 months

First, the annuity formula will be used to determine the entire future value:

$\begin{aligned}A&=P\times(1+\frac{i}{n})\\&=\ 6,500\times(1+\frac{0.095}{36})\\&=\ 6,517.15\end{aligned}$

Now, the finance charge will be determined by the difference between the Annuity amount and Principal amount.

$\begin{aligned}\text{Finance Charge}&=A-P\\&=\ 6,517.15-\ 6,500\\&=\ 17.15\end{aligned}$

Therefore, the finance charge is $17.15 is not mentioned in any of the given options.

To know more about finance charges, refer to the link:

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