Question

Select the correct answer from each drop-down menu.

Rodrigo applied for a $14,000 loan at an interest rate of 5.4% for 6 years. Use the monthly payment formula to complete the statement.



M =



M = monthly payment


P = principal


r = interest rate


t = number of years



Rodrigo’s monthly payment for the loan is , and the total finance charge for the loan is .

Answer 1

Rodrigo’s monthly payment for the loan is $257.44 and the total finance charge for the loan is $4,536

Explanation:

Given Principal = $14,000,

r = rate (in %) = 5.4%

t = time (in years) = 6years

Simple interest = principal *rate*time/100

Simple interest = 14000*5.4*6/100

simple interest = $4,536

Total finance charge on $14,000 loan at an interest rate of 5.4% for 6 years is $4,536

Amount charged for 6 years = Principal + Interest

Amount charged for 6 years = $14,000 + $4,536

Amount charged for 6 years = $18,536

Monthly payment = Amount charged for 6years/Total months

Monthly payment = $18,536/12*6

Monthly payment = $18,536/72

Monthly payment ≈ $257.44

Answer 2

The correct answers are monthly payment: $228.08 and total finance charge: $2,421.76.

Explanation:

Using formula

M = [(P(r/12)(1 + r/12)^12t) / (1 + r/12)^12t] - 1

M = monthly payment

P = principal

r = interest rate

t = number of years

The monthly payment is $228.08. For 6 years, the loan period is for 72 months. $228.08 x 72 = $16,421.76

So the total finance charge is $16,421.76 - $14,000 = $2,421.76.