Question

Suzanne and Gavin are taking out installment loans for $1,700 at a stated interest rate of 6%. The term of each loan is five years. Answer the following questions using the repayment information table that follows the questions as necessary. For convenience, the table headings are displayed above the scroll box.

Suzanne	Gavin
Suzanne’s loan uses simple interest to compute finance charges.	Gavin’s loan uses the add-on method to compute finance charges.
Suzanne’s monthly payment rounded to the nearest cent is $ .	Gavin’s total finance charge rounded to the nearest cent is $ .

Complete the following tables using all interim figures rounded to the nearest cent in your calculations. Enter all figures as positive numbers rounded to the nearest cent. Note that the tables are slightly different to reflect the different methods used for finance charges.

Suzanne – Simple		Gavin – Add-On
Total payments	$	Principal	$
Principal	$	Finance charge	$
Finance charge	$	Total payments	$

Who paid more for the same loan?

  , whose loan used the      method to compute finance charges.

Monthly Installment Loan Payments to Repay a $1,000, Simple Interest Loan

	Number of Monthly Payments
Rate of Interest	12	24	36	48	60	72	84
5	$85.61	$43.87	$29.97	$23.03	$18.87	$16.10	$14.13
6	$86.07	$44.32	$30.42	$23.49	$19.33	$16.57	$14.61
7	$86.53	$44.77	$30.88	$23.95	$19.80	$17.05	$15.09
8	$86.99	$45.23	$31.34	$24.41	$20.28	$17.53	$15.59
9	$87.45	$45.68	$31.80	$24.88	$20.76	$18.03	$16.09
10	$87.92	$46.14	$32.27	$25.36	$21.25	$18.53	$16.60
11	$88.38	$46.61	$32.74	$25.85	$21.74	$19.03	$17.12
12	$88.85	$47.07	$33.21	$26.33	$22.24	$19.55	$17.65
13	$89.32	$47.54	$33.69	$26.83	$22.75	$20.07	$18.19
14	$89.79	$48.01	$34.18	$27.33	$23.27	$20.61	$18.74
15	$90.26	$48.49	$34.67	$27.83	$23.79	$21.14	$19.27
16	$90.73	$48.96	$35.16	$28.34	$24.32	$21.69	$19.86
17	$91.20	$49.44	$35.65	$28.85	$24.85	$22.25	$20.44
18	$91.68	$49.92	$36.15	$29.37	$25.39	$22.81	$21.02
19	$92.16	$50.41	$36.66	$29.90	$25.94	$23.38	$21.61
20	$92.63	$50.90	$37.16	$30.43	$26.49	$23.95	$22.21

Answer 1

Loan = 1700 , Interest rate = 6%, Period of Loan = 5 years = 5 x 12 months = 60 months

Calculation for Suzanne

Using the table given in question for monthly installment for simple interest method, we get

Monthly installment for $1000 loan at 6% for 60 months(5years) = $19.33

Monthly Installment for $1700 loan at 6%% for 60 months(5years) = (1700 / 1000) x Monthly installment for $1000 loan at 6% for 60 months(5years) = 1.7 x 19.33 = 32.8610 = 32.86 (rounded to nearest cent)

Suzanne monthly payment rounded off to nearest cent is $32.86

Total payments = No of months x Monthly Installment for $1700 loan at 6% for 60 months(5years) = 60 x 32.86 = 1971.60

Finance charge = Total Payments - Principal = 1971.60 - 1700 = 271.60

Suzanne-Simple
Total Payments	1971.60
Principal	1700.00
Finance Charge	271.60

Calculation for Gavin

In add on method, Total Finance charges = Principal x Interest rate x no of years of loan = 1700 x 6% x 5 = 510

Gavin's Total finance charges rounded off to nearest cent is $510.00

Total Payments = Principal + Finance charges = 1700 + 510 = 2210.00

Gavin-Add on
Principal	1700.00
Finance Charges	510.00
Total Payments	2210.00

Who paid more for the same loan?

Gavin, whose loan used the add-on method to compute finance charges.