5. Rule of 78s. Aaron Carson of Bishop, California, obtained a two-year installment loan for $1500 to
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5. Rule of 78s. Aaron Carson of Bishop, California, obtained a two-year installment loan for $1500 to buy some furniture eight months ago. The loan had a 12.6 percent APR and a fi nance charge of $204.72.
His monthly payment is $71.03. Aaron has made eight monthly payments and now wants to pay off the remainder of the loan. The lender will use the rule of 78s method to calculate a prepayment penalty.
(a) How much will Aaron need to give the lender to pay off the loan?
(b) What is the dollar amount of the prepayment penalty on this loan?
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