Question

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Peg Gasperoni bought a $50,000 life insurance policy for $340 per year. Ryan Life Insurance Company sent her the following billing instructions along with a premium plan example: "Your insurance premium notice will be mailed to you in a few days. You may pay the entire premium in full without a finance charge or you may pay the premium in installments after a down payment and the balance in monthly installments of $85. The finance charge will be added to the unpaid balance. The finance charge is based on an annual percentage rate of 18%." The total number of monthly The monthly If the total The balance installments installment before policy And you subject to finance ($30 minimum) adding the finance premium is: put down charge will be: charge will be $340 $85.00 $255.00 $85.00 $440 $105.00 $335.00 $85.00 $540 $130.00 $410.00 $85.00 The total finance charge for all installments will be $8.03 $12.81 $18.84 And the total deferred payment price will be: $348.03 $452.81 $558.84 Peg feels that the finance charge of $8.03 is in error. Check your answer. a. What is the actual finance charge for the first three months? (Round your answer to the nearest cent.) Finance Charge C b. Is she correct? Yes Ο Νο

Answer 1

Answer:

Actual finance charge for first 3 months:

Month	Opening Principal	Principal Repayment	Finance Charge	Closing principal
1	$255	$85 (255/3)	$3.83 (255*0.18/12)	$170
2	$170	$85	$2.55(170*0.18/12)	$85
3	$85	$85	$1.28 (85*0.18/12)	$0

a.Total finance charge = $3.83+$2.55+$1.28 = $ 7.66

b Is she correct?   
Ans: Yes

Thank you.