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3. Dave borrowed $500 for one year and paid $50 in interest. The
bank charged him a $5 service charge.
A- What is the finance charge on this loan?
B- Dave borrowed $500 on January 1, 2006, and paid it all back at
once on December 31, 2006. What was the APR?
C- If Dave paid the $500 in 12 equal monthly payments, what is the
4. Calculating Simple Interest on a Loan. Damon convinced his aunt
to lend him $2,000 to purchase a plasma digital TV. She has agreed to
charge only 6 % simple interest, and he has agreed to repay the loan
at the end of one year. How much interest will he pay for the year?
5. After visiting several automobile dealerships, Richard Welch
selects the car he wants. He likes its $10,000 price, but financing
through the dealer is no bargain. He has $2,000 cash for a down
payment, so he needs an $8,000 loan. In shopping at several banks for
an installment loan, he learns that interest on most automobile loans is
quoted at add-on rates.
That is, during the life of the loan, interest is paid on the full amount
borrowed even though a portion of the principal has been paid back.
Richard borrows $8,000 for a period of four years at an add-on
interest rate of 11 percent.
Questions
a. What is the total interest on Richard’s loan?
b. What is the total cost of the car?
c. What is the monthly payment?
d. What is the annual percentage rate (APR)?