Select the correct answer from each drop-down menu.

Gus applied for a $12,000 loan with an interest rate of 7.3% for 5 years. Use the monthly payment formula to complete the statement.

M =

M = monthly payment
P = principal
r = interest rate
t = number of years

His monthly payment for the loan will be $, and the total finance charge for the loan will be $.

His monthly payment for the loan will be $ 239.28, and the total finance charge for the loan will be $2,356.80.

Step-by-step explanation:

1. Let's review the information given to us to answer the questions correctly:

Principal of the loan = $ 12,000

Interest rate = 7.3% annually = 0.073/12 = 0.00608333 monthly

Time of the loan = 5 years or 60 months

2. His monthly payment for the loan will be $, and the total finance charge for the loan will be $ .

Let's use the monthly payment formula this way:

M = P * [r * (1 + r)ⁿ/(1 + r)ⁿ - 1]

Where,

M = monthly payment

P = principal

r = interest rate

n = number of payments

Replacing with the real values, we have:

M = 12,000 * [0.00608333 * (1.00608333)⁶⁰/  (1.00608333)⁶⁰- 1]

M = 12,000 * (0.008753441 /0.438922)

M = 12,000 * 0.01994

M = $ 239.28

Now, we can calculate the total finance charge for the loan, this way:

Total finance charge = (Monthly payment * Number of payments) - Principal of the loan

Total finance charge = (239.28 * 60) - 12,000

Total finance charge = 14,356.80 - 12,000

Total finance charge = $ 2,356.80

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