Question

Tamora just made the last of her monthly payments on her loan. She had been making these payments for the past nine years. The loan had a principal of $10,675 and an interest rate of 4.75%, compounded monthly. In addition, Tamora paid $939.25 in service charges. What was Tamora’s total finance charge? Round all dollar values to the nearest cent.
a.
$939.25
b.
$11,614.25
c.
$3,403.53
d.
$2,464.28

Answer 1

Monthly interest rate = 0.0475/12 = 0.0039583333. Number of payments n = 9·12 = 108.

Monthly payment
M = 10675 · [r / (1 − (1+r)^−108)] ≈ $121.66.

Total paid over 108 months = 121.66 · 108 ≈ $13,139.28.
Interest paid = 13,139.28 − 10,675.00 = $2,464.28.
Total finance charge = interest + service charges = 2,464.28 + 939.25 = $3,403.53.

Answer: c. $3,403.53.