Question

Chantelle takes out a loan of $3,500 with an APR of 4.25%. She will repay the loan in monthly payments for 6 months. To find the total amount of interest she will pay, Chantelle uses an online calculator. What are the correct numbers she should enter?

Answer 1

APR = Annual Percentage Rate

[(3500x0.0425)+3500]/2

The numerator is divided by 2 because 6 months is half of a year.

Answer 2

Chantelle will pay $73 of interest for a loan of $3,500 with an APR of 4.25%.

Explanation:

Since APR is defined as the anual percentage rate, the amount of interest that Chantelle will pay can be expressed as:

I=L*(1+APR/100%)^n-L

Where L is the amount of money borrewed and n the numbers of years. As Chantelle repay the loan in less than a year n is less than 1:

n = 6 months / 12 months = 0.5

Then replacing the calculated value of n, the ARP and the the borrowed money:

I=$3,500*(1+4.25%/100%)^0.5-$3,500

I=$3,500*(1+0.0425)^0.5-$3,500

I=$3,500*1.021-$3,500

I=$3,573-$3,500

I=$73