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7. Calculating finance charges using the discount method and APR on a single-payment Aa Aa loan You are taking out a single-payment loan that uses
7. Calculating finance charges using the discount method and APR on a single-payment Aa Aa 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 method. Under the discount method, a borrower receives the principal the principal is $10,000 and the finance charges are $400, the borrower will receive $ the way they're computed using the simple interest the finance charges. For example, if The following equation computes the finance charges on your loan: In the equation, Fd is the finance charge for the loan. What are the other values? P is the r is the stated t is the term of the loan in amount of the loan rate of interest. You're borrowing $8,000 for a year with a stated annual interest rate of 4%. Complete the following table. (Note: Round your answers to the nearest dollar.) Principal Finance charges Loan disbursement$ Total payback $8,000 Annual Percentage Rate (APR) You also want to calculate the APR (annual percentage rate) and compare it to the stated interest rate. Average Annual Finance charge Average Loan Balance Outstanding APR First, compute the average annual finance charge by dividing the total finance charge of$ the loan, which is a year (1.0 year) = $ by the life of Note: Round your answers to the nearest dollar). Next, as a single-payment loan, the average loan balance outstanding is constant at the this case, $ in Complete the calculation. (Note: Round your answers to the nearest dollar and your percentage point to the nearest two decimal places.) Average Annual Finance Charge Average Loan Balance Outstanding APR The APR is the stated interest rate because the O Formula to compute finance charges is the same for the discount and simple interest methods O Loan is a single-payment loan O Term of the loan is more than six months O Discount method was used to calculate finance charges
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