A few days ago
Personal Finance/Account help! One more time? Please? :)?
ok I struggle with math ok well numbers in general. Nothing that involves a number makes sense to me. I’m more creative lol. Ok heres the question: Find the finance charges on a 7.5%, 18 month single-payment loan when interest is computed using the simple interest method. Find the finance charges on the same loan when interest is computed using the discount method. Determine the APR in each case.
If you could – please explain generally what it is your doing so I understand – much appreciated.
Top 1 Answers
A few days ago
Favorite Answer
Simple Interest:
Interest = Principal * Rate * Time
Time is given in years
so in your case, principal is given, but let’s try 100
I = 100 * .075 * 1.5
I = 11.25
so APR = 11.25/1.5 = .075 or 7.5%
now for discounted method., instead of getting the full 100 dollars, you pay the interest up front and only get 100-11.25 or 88.75. the effective rate of interest would be the interest amount divided by what you actually receive and this total divided by the length of the loan (1.5) or
(11.25/88.25) / 1.5 which equals 8.45%
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