Question

Drop down options:

1. the same as, differently from

2. less, plus

3. $9280, $6720

4. -, x, /, +

5. -, x, /, +

6. principal, payback

7. annual, monthly

8. months, years

9. principal, loan disbursement

10. higher than, the same as, lower than

7. Calculating finance charges using the discount method and APRon a single payment loan You are taking out a single-payment loan that uses the discount method to compute the finance charges. Computing the finance charges is done the way they're computed using the simple interest method. Under the discount method, a borrower receives the principal the finance charges. For example, if the principal is $8,000 and the finance charges are $1,280, the borrower will receive $ The following equation computes the finance charges on your loan: F = F, =P In the equation, Fe is the finance charge for the loan. What are the other values? P is the amount of the loan. is the stated rate of interest. t is the term of the loan in You're borrowing $6,000 for two years with a stated annual interest rate of 8%. Complete the following table. (Note: Round your answers to the nearest dollar.) Principal $6,000 Finance charges Loan disbursement Total payback Annual Percentage Rate (APR)

Answer 1

Answer - Drop down options and blank boxes are filled in the question asked with underline.

Calculating finance charges using the discount method and APR on a single-payment loan

You are taking out a single-payment loan that uses discount method to compute the finance charges. Computing the finance charges is done the same as the way they're computed using the simple interest method. Under the discount method, a borrower receives the principal less the finance charges. For example, if the principal is $8,000 and the finance charges are $1,280, the borrower will receive $6,720.

The following equation computes the finance charges on your loan:

Fd = Fs = P  x r  x t

In the equation, Fd is the finance charge for the loan. What are the other values?

P is the principal amount of the loan.

r is the stated annual rate of interest.

t is the term of the loan in years.

You're borrowing $6,000 for two years with a stated annual interest rate of 8%. Following is the completed table:

Particulars	Working	Amount
Principal	Given	$6,000
Finance charges	($6,000 * 8% * 2)	$960
Loan disbursement	($6,000 - $960)	$5,040
Total payback	($5,040 + $960)	$6,000

Annual Percentage Rate (APR)

APR = Average Annual Finance Charge / Average Loan Balance Outstanding

First, compute the average annual finance charge by dividing the total finance charge of $960 by the life of the loan, which is two years (2.0 years) = $480

Next, as a single-payment loan, the average loan balance outstanding is constant at the principal, in this case, $6,000.

Complete the calculation.

APR = Average Annual Finance Charge / Average Loan Balance Outstanding

= $480 / $6,000

= 8%

The APR is the same as the stated interest rate because the

$\circ$ Formula to compute finance charges is the same for the discount and simple interest methods