Question

Dahlia is trying to decide which bank she should use for a loan she wants to take out. In either case, the principal of the loan will be $19,450, and Dahlia will make monthly payments. Bank P offers a nine-year loan with an interest rate of 5.8%, compounded monthly, and assesses a service charge of $925.00. Bank Q offers a ten-year loan with an interest rate of 5.5%, compounded monthly, and assesses a service charge of $690.85. Which loan will have the greater total finance charge, and how much greater will it be? Round all dollar values to the nearest cent. a. Loan Q’s finance charge will be $83.73 greater than Loan P’s. b. Loan Q’s finance charge will be $317.88 greater than Loan P’s. c. Loan P’s finance charge will be $20.51 greater than Loan Q’s. d. Loan P’s finance charge will be $234.15 greater than Loan Q’s.

Answer 1

Answer:

Loan Q’s finance charge will be $83.73 greater than Loan P’s

Step-by-step explanation:

Using EMI Formula

EMI = [P x R x (1+R)^N]/[(1+R)^N-1]

Loan P

P = $19,450

R = 5.8/1200

N = 9 * 12 = 108

EMI = 231.6 $

Amount Paid = 231.6 * 108 = $ 25012.8

Interest Paid = 25012.8  - 19450 =  $ 5562.8

Service Charge = $ 925

Total Finance Charges  = $ 6487.8

Loan Q

P = $19,450

R = 5.5/1200

N = 10 * 12 = 120

EMI = 211.1 $

Amount Paid = $ 25330.8

Interest Paid = 25330.8  - 19450 =  $ 5880.8

Service Charge = $ 690.85

Total Finance Charges  = $ 6571.65

Loan Q - Loan P fiance charges =  $ 83.85

Loan Q’s finance charge will be $83.73 greater than Loan P’s is closet