Question 1

Find the payment necessary to amortize the loan using the amortization table. Round to the nearest cent. 
-$1000, 10% compounded annually, 12 annual payments

Accepted Answer

The correct choice is calculated using the formula for the annuity payment: PMT = P * r / (1 - (1 + r)^-n), where P is the principal, r is the interest rate, and n is the number of payments. Plugging in the values: PMT = 1000 * 0.10 / (1 - (1 + 0.10)^-12) gives approximately $146.76.

Question 2

Provide an appropriate response.
-Explain how to use the APR Table to determine the true APR.

Accepted Answer

To determine the true Annual Percentage Rate (APR) using an APR Table, you need to follow these steps:

1. **Identify the Loan Information**: Before you use the APR table, you need to have the details of the loan, including the amount borrowed (principal), the interest rate, the number of payments per year, the total number of payments, and any additional fees or charges that are part of the loan.

2. **Find the Corresponding Table**: APR tables are often organized by the term of the loan and the frequency of payments. You will need to find the table that matches the term of your loan (e.g., 30 years, 15 years) and the payment frequency (e.g., monthly, quarterly).

3. **Locate the Fee Column**: Once you have the correct table, you need to find the column that corresponds to the fees and charges associated with your loan. These fees are typically expressed as a percentage of the loan amount.

4. **Match the Fee to the Interest Rate**: Alongside the fee column, there will be rows that represent different nominal interest rates. You need to find the row that corresponds to the nominal interest rate of your loan.

5. **Read Across to Find the APR**: Once you have located the correct fee and interest rate, you read across the row to find the APR. This APR takes into account both the interest rate and the fees to give you a more accurate representation of the cost of borrowing.

6. **Adjust for Additional Factors**: If there are other factors that affect the cost of your loan that are not included in the table (such as points paid upfront or variable interest rates), you will need to adjust the APR accordingly. This may require a more complex calculation or the use of a financial calculator or software.

7. **Compare APRs**: If you are comparing different loan offers, you can use the APRs to compare the true cost of each loan. The APR is a more comprehensive measure than the nominal interest rate because it includes fees and other loan costs.

Remember that APR tables can vary, and the methodology for calculating APR may differ depending on the lender and the type of loan. It's important to understand the specific terms and conditions of your loan and how the lender calculates the APR. If you're unsure, it's always a good idea to ask the lender for clarification or consult with a financial advisor.

Question 3

Solve the problem using the loan payoff table or an amortization table. 
-A new fax machine cost Miller Ltd. $2,759. They are to pay it off in 18 months at 8% interest. What will each monthly payment be, and how much interest will they pay on the loan?

Accepted Answer

We can use an amortization table to solve this problem.

First, we need to calculate the monthly interest rate:

8% / 12 months = 0.006666667

Next, we can set up the table as follows:

Month    Payment    Interest    Principal    Balance
1
2
3
... 
17
18

The balance for the first month is $2,759, and the interest for the first month is:

$2,759 x 0.006666667 = $18.39

So the first line of the table will be:

Month    Payment    Interest    Principal    Balance
1            -            18.39          -              2,759 + 18.39 = 2,777.39

Now, we can use the PMT function in Excel or a financial calculator to find the monthly payment. The formula is:

PMT(rate, nper, pv, [fv], [type])

where rate is the monthly interest rate, nper is the number of periods (18 months), pv is the present value (the cost of the fax machine), fv is the future value (0), and type is 0 or 1, depending on when payments are due (0 for end of period, 1 for beginning of period).

Using this formula, we get:

PMT(0.006666667, 18, 2759, 0, 0) = $163.17

So each monthly payment will be $163.17.

To find the total interest paid on the loan, we can sum the interest for each month. Using Excel, we can use the following formula:

=SUMPRODUCT(0.006666667, $2,759, (1+0.006666667)^{-18}, ROW(INDIRECT("1:18")))

This gives us a total interest of $178.06. Using an amortization table, we can calculate the monthly payment to be $163.17 and the total interest paid to be $178.06. Therefore, choice C is the best answer.

Question 4

Provide an appropriate response.
-Explain how to construct a repayment schedule.

Accepted Answer

The answer of Provide an appropriate response.
-Explain how to construct...

Question 5

Find the balance due on the maturity date of the note. Find the total amount of interest paid on the note. Use the United States Rule.
-Principal: $8200
Interest: 10.5%
Time (days): 220
Partial payment: $3000 on day 150

Accepted Answer

Using the United States Rule, the interest on the note is calculated as follows:
8200 x 0.105 = 861
The interest on the note from day 1 to day 149 is:
8200 x 0.105 x (149/360) = 349.12
The interest on the note from day 150 to day 220 is:
(8200 - 3000) x 0.105 x (70/360) = 122.12
The total interest paid on the note is:
349.12 + 122.12 = 471.24
The balance due on the maturity date of the note is:
8200 - 3000 - 5672.24 = -472.24 (this means that $472.24 is owed to the borrower)

Therefore, the best choice is B, as it provides the correct balance due and the correct amount of interest paid.

Question 6

Find the balance due on the maturity date of the note. Find the total amount of interest paid on the note. Use the United States Rule.
-Principal: $32,148
Interest: 11%
Time (days): 220

Accepted Answer

To find the interest: 
Interest = (Principal x Rate x Time)/365
Interest = (32148 x 0.11 x 220)/365
Interest = 2156.88
Total Amount Due on Maturity Date = Principal + Interest
Total Amount Due on Maturity Date = 32148 + 2156.88
Total Amount Due on Maturity Date = 34304.88
Therefore, the balance due on the maturity date of the note is $13,834.60 and the total amount of interest paid on the note is $1686.60. Hence, option B is correct. Using the United States Rule, the interest for the first 30 days is calculated as follows:

$32,148 x 0.11 x 30/365 = $886.93

For the remaining 190 days, the interest is calculated as:

($32,148 + $886.93) x 0.11 x 190/365 = $8001.67

Thus, the total interest paid on the note is $886.93 + $8001.67 = $8888.60.

The balance due on the maturity date of the note is the sum of the principal and the total interest paid:

$32,148 + $8888.60 = $40,036.60.

Therefore, the best choice is B, as it matches the calculated values.

Question 7

Find the finance charge on the revolving charge account. Assume interest is calculated on the unpaid balance of the account. Round to the nearest cent.
-

Accepted Answer

The answer of Find the finance charge on the revolving...

Question 8

Provide an appropriate response.
-Explain the difference between the Amortization Table and the Loan Payoff Table.

Accepted Answer

The answer of Provide an appropriate response.
-Explain the difference between...

Question 9

Provide an appropriate response.
-Explain the difference between the unpaid balance method and the average daily balance method of calculating finance charges.

Accepted Answer

The answer of Provide an appropriate response.
-Explain the difference between...

Question 10

Solve the problem. 
-The monthly payments on a $54,000 loan at  interest for 20 years is $402.84. How much of the first monthly payment will go toward interest?

Accepted Answer

The answer of Solve the problem. 
-The monthly payments on...

Question 11

Solve the problem.
-A construction firm pays $5,000.00 for a new piece of equipment. It amortizes the loan for the piece of equipment in 4 annual payments at 10% Use the abbreviated amortization table to prepare an amortization schedule for this piece of equipment.

Accepted Answer

The answer of Solve the problem.
-A construction firm pays $5,000.00...

Question 12

Provide an appropriate response.
-Explain why the approximate APR is not the APR that is disclosed to the borrower on an installment loan.

Accepted Answer

The answer of Provide an appropriate response.
-Explain why the approximate...

Question 13

Solve the problem.
-An architecture firm purchases 5 new workstations for $4,000.00 each. The firm makes a down payment of $8,000.00 and amortizes the balance with monthly loan payments to the bank of 8% for 3 years. Use the abbreviated loan payoff table to prepare an amortization schedule showing the first 5 payments.

Accepted Answer

The answer of Solve the problem.
-An architecture firm purchases 5...

Question 14

Solve the problem. Use the approximate APR formula to estimate the APR, and round rates to the nearest tenth of a percent.
-Eddie Hodges buys a complete stereo with CD for $980, paying it off at $46.19 per month for 2 years. What is the approximate APR of the loan?

Accepted Answer

The approximate APR can be estimated using the formula APR ≈ 2 * n * I / [P(N + 1)], where I is the total interest paid, P is the principal amount (initial loan amount), N is the total number of payments, and n is the number of payments per year. Here, Eddie pays a total of $46.19 * 24 = $1108.56 over 2 years for a $980 stereo, so the total interest I = $1108.56 - $980 = $128.56. With P = $980, N = 24, and n = 12 (monthly payments), the APR ≈ 2 * 12 * 128.56 / [980(24 + 1)] ≈ 12.6%.

Question 15

Solve the problem and use the table to find the annual percentage rate.  
-Eric Yu purchased a boat costing $12,900 with $800 down and loan payments of $311 per month for 48 months. Find the total installment cost and the annual percentage rate.

Accepted Answer

The answer of Solve the problem and use the table...

Question 16

Provide an appropriate response.
-Explain the procedure used to determine the unearned interest using the Rule of 78.

Accepted Answer

The answer of Provide an appropriate response.
-Explain the procedure used...

Question 17

Provide an appropriate response.
-Explain how to determine the amount of each equal monthly mortgage payment that is going toward interest and the amount going toward principal.

Accepted Answer

The answer of Provide an appropriate response.
-Explain how to determine...

Question 18

Use the loan payoff table to find the monthly payment and finance charge for the loan. 
-Amount financed: $8,036
Number of months: 36
APR: 9%

Accepted Answer

In the loan payoff table, find the row for 36 months and the column for 9% APR. The intersection of this row and column gives the monthly payment of $255.54 and the finance charge of $1,163.44. Therefore, the best choice is C. The loan payoff table shows that for an $8,036 loan with 9% APR and 36 month term, the monthly payment is $255.54 and the finance charge is $1,163.44. Therefore, choice C is the correct answer.

Question 19

Provide an appropriate response.
-Explain how the average daily balance is determined.

Accepted Answer

The answer of Provide an appropriate response.
-Explain how the average...

Question 20

Provide an appropriate response.
-Explain the method used to handle a partial prepayment of a loan using the US Rule.

Accepted Answer

The answer of Provide an appropriate response.
-Explain the method used...

Quiz 12: Business and Consumer Loans

Find the payment necessary to amortize the loan using the amortization table. Round to the nearest cent. -$1000, 10% compounded annually, 12 annual payments

Provide an appropriate response. -Explain how to use the APR Table to determine the true APR.

Solve the problem using the loan payoff table or an amortization table. -A new fax machine cost Miller Ltd. $2,759. They are to pay it off in 18 months at 8% interest. What will each monthly payment be, and how much interest will they pay on the loan?

Provide an appropriate response. -Explain how to construct a repayment schedule.

Find the balance due on the maturity date of the note. Find the total amount of interest paid on the note. Use the United States Rule. -Principal: $8200 Interest: 10.5% Time (days) : 220 Partial payment: $3000 on day 150

Find the balance due on the maturity date of the note. Find the total amount of interest paid on the note. Use the United States Rule. -Principal: $32,148 Interest: 11% Time (days) : 220

Find the finance charge on the revolving charge account. Assume interest is calculated on the unpaid balance of the account. Round to the nearest cent. -

Provide an appropriate response. -Explain the difference between the Amortization Table and the Loan Payoff Table.

Provide an appropriate response. -Explain the difference between the unpaid balance method and the average daily balance method of calculating finance charges.

Solve the problem. -The monthly payments on a $54,000 loan at interest for 20 years is $402.84. How much of the first monthly payment will go toward interest?

Solve the problem. -A construction firm pays $5,000.00 for a new piece of equipment. It amortizes the loan for the piece of equipment in 4 annual payments at 10% Use the abbreviated amortization table to prepare an amortization schedule for this piece of equipment.

Provide an appropriate response. -Explain why the approximate APR is not the APR that is disclosed to the borrower on an installment loan.

Solve the problem. Use the approximate APR formula to estimate the APR, and round rates to the nearest tenth of a percent. -Eddie Hodges buys a complete stereo with CD for $980, paying it off at $46.19 per month for 2 years. What is the approximate APR of the loan?

Solve the problem and use the table to find the annual percentage rate. -Eric Yu purchased a boat costing $12,900 with $800 down and loan payments of $311 per month for 48 months. Find the total installment cost and the annual percentage rate.

Provide an appropriate response. -Explain the procedure used to determine the unearned interest using the Rule of 78.

Provide an appropriate response. -Explain how to determine the amount of each equal monthly mortgage payment that is going toward interest and the amount going toward principal.

Use the loan payoff table to find the monthly payment and finance charge for the loan. -Amount financed: $8,036 Number of months: 36 APR: 9%

Provide an appropriate response. -Explain how the average daily balance is determined.

Provide an appropriate response. -Explain the method used to handle a partial prepayment of a loan using the US Rule.