Respuesta :
The total finance charge for a $4,250 loan at 13. 25% interest compounded monthly for 24 months is $670.54.
What is Compound Interest?
Interest on interest, or compound interest, is the adding of interest to the principal sum of a loan or deposit. It's the outcome of reinvesting interest rather than paying it out so that interest is received on the principal plus previously collected interest in the next quarter.
[tex]A = P(1 + \frac{r}{n})^{nt}[/tex]
A is the final amount, P is the Initial principal balance, r is the interest rate, n is the number of times interest is applied per time period, t is the number of time periods elapsed.
As it is given that the principal amount is $4,250 while the interest rate is 13.25% compounded monthly and the principal amount is taken for 24 months, therefore,
[tex]A = P(1 + \frac{r}{n})^{nt}\\\\A = 4,250(1 + \frac{0.1325}{12})^{24 \times 2}\\\\A = 5,531.54[/tex]
Now, the total amount that is needed to be paid is $5,531.54, while $4,250 was the principal amount therefore, the finance charge or the interest is,
Financial Charge = Final amount - Principal amount
Financial Charge = $5531.54 - $4861 = $670.54
Hence, the total finance charge for a $4,250 loan at 13. 25% interest compounded monthly for 24 months is $670.54.
Learn more about Compound Interest:
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