Question

Frank finances a motor home for $44,300 by taking out an installment loan for 36 months with the monthly payment of $1,784.31. After 21 months, Francis decided to pay off the loan. After calculating the finance charge rebate, find the loan payoff amount.

$22,490.17

$23,897.36

$22,417.77

$23,172.73

Answer 1

Solution:

Monthly payment = $1,784.31

Loan amount = $44,300

Let implied monthly rate of interest is i.

Therefore

$1,784.31 * Cumulative PV factor at i rate for 36 periods = $44,300

Cumulative PV factor at i rate for 36 periods = $44,300 / $1,784.31 = 24.82752

This PV Factor falls at i = 2.166%

Annual rate of interest = 26%

If after 21 month francis decided to pay off the loan then loan pay off amount will be present value of remaining installment at the end of 21 months

Pay off amount = $1,784.31 * cumulative PV fact at 2.1666% for 15 (36-21) periods

=$1,784.31 * 12.69112

= $22,644.89