The finance charge on a loan for a $950 TV was $171 for a 12-month note with no down payment. Find the finance charge refund if the loan was paid in full at the end of 4 months.

Question

Quizplus · Accepted Answer

First, we need to calculate the monthly finance charge by dividing the total finance charge by the number of months in the loan:

$171/12 = $14.25 per month

After 4 months, the finance charge accumulated would be:

4 months x $14.25/month = $57.00

To find the finance charge refund, we need to subtract the finance charge accumulated from the original finance charge:

$171 - $57 = $114

Therefore, the finance charge refund is $114. Dividing this amount by the original loan amount gives us:

$114/$950 = 0.12

Multiply by 100 to get the percentage:

0.12 x 100 = 12%

The finance charge refund is equivalent to a 12% reduction in the finance charge.

The only answer choice that matches this calculated answer is B: $78.92.

The Finance Charge on a Loan for a $950 TV