Question

Round any decimals to the nearest penny.

Secured Unsecured
Credit APR APR
Excellent 4.75% 5.50%
Good 5.00% 5.90%
Average 5.85% 6.75%
Fair 6.40% 7.25%
Poor 7.50% 8.40%

Use the table above for interest rate questions.
Your parents are purchasing a mobile home for $89,000. The sales tax is 4.2%, they make a $3,000 down payment, and they have an excellent credit score. How much is the interest at the end of the second month if their first month’s payment is $925.67?

Answer 1

1. Sales tax = 89,000 × 0.042 = 3,738.
Loan amount = 89,000 + 3,738 − 3,000 = 89,738.00

2. Monthly rate = 4.75%/12 = 0.0475/12.

3. Interest for month 1 = 89,738 × (0.0475/12) = 355.21.
Principal paid in month 1 = 925.67 − 355.21 = 570.46.
New balance = 89,738.00 − 570.46 = 89,167.54

4. Interest at end of month 2 = 89,167.54 × (0.0475/12) = 352.95

Answer: $352.95.