Landon wallin is an auto mechanic who wishes to start his own business. he will need $4300 to purchase tools and equipment. landon decides to finance the purchase with a 60-month fixed installment loan with an apr of 5.5% a) determine landon's finance charge. b) determine landon's monthly payment.

  a)  $627.80

  b)  $82.13

Step-by-step explanation:

It is convenient to compute the monthly payment first, then figure the total amount repaid and the finance charge.

These problems are easily solved using a calculator's TVM Solver, an on-line loan amortization calculator, or a spreadsheet. You can also use the amortization formula:

  A = Pr/(1 -(1 +r)^-n)

where A is the monthly payment, P is the loan amount, r is the monthly interest rate, and n is the number of months

b) Using the above formula, ...

  A = $4300(.055/12)/(1 -(1 +0.055/12)^-60) = $19.708333/0.23995049

  A = $82.13

The monthly payment amount is $82.13.

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a) 60 monthly payments add up to ...

  $82.13 × 60 = $4927.80

Since $4300 of that amount is principal, the finance charge is ...

  $4927.80 -4300.00 = $627.80

Landon's finance charge is $627.80.

Comment on finance charge

The actual payment amount is almost 1/2 cent higher than the rounded amount shown above. Over 60 months, this would add a little more than $0.30 to the total amount repaid. In real life, the difference would probably show up as an adjustment to the final loan payment of perhaps $0.34. That is, a more careful amortization of the loan may reveal finance charges total $628.14.

step-by-step explanation: