Question

Meghan Pease purchased a small sailboat for $8,350. She made a down payment of $1,300 and financed the balance with monthly payments of $233. 38 for 36 months.

(a) What is the finance charge (in $) on the loan?

(b) Use Table 13-1 to find what annual percentage rate was charged on Meghan's loan

Answer 1

(a) $1351.68

(b) 11.77%

Explanation:

You want the finance charge and the APR on a loan for the balance of an $8350 sailboat after a $1300 down payment, when the 36 monthly payments were $233.38.

(a) Finance charge

The total amount paid for the sailboat is the sum of the down payment and the monthly payments:

total paid = $1300 +36·$233.38 = $9701.68

The finance charge is the excess amount over the price of the sailboat:

finance charge = $9701.68 -8350.00 = $1351.68

The finance charge on the loan is $1351.68.

(b) Interest rate

We don't have your Table 13-1, but we can find the interest rate using a financial calculator.

The APR on the 36-month loan for $7050 with payments of $233.38 is about 11.77%.