Chapter 4 Exam

Front

What is the formula to calculate the monthly payment for a loan?

Back

Monthly Payment = (Principal × Monthly Interest Rate) / (1 - (1 + Monthly Interest Rate)^-Number of Payments)

Front

Define APR (Annual Percentage Rate).

Back

APR is the annual rate charged for borrowing or earned through an investment, expressed as a percentage.

Front

How do you calculate the finance charge on a loan?

Back

Finance Charge = Total Payments - Principal Amount.

Front

What is the significance of the average daily balance in credit card billing?

Back

The average daily balance is used to calculate the finance charge on a credit card, reflecting the amount owed over the billing period.

Front

If a loan has an APR of 6.75%, what is the monthly interest rate?

Back

Monthly Interest Rate = APR / 12 = 6.75% / 12 = 0.5625%.

Front

What does it mean to make a down payment?

Back

A down payment is an initial upfront payment made when purchasing an expensive item, reducing the amount financed.

Front

How do you determine the total cost of a financed purchase?

Back

Total Cost = Down Payment + Total Payments.

Front

What is the purpose of a loan amortization table?

Back

A loan amortization table shows the breakdown of each payment into principal and interest over the life of the loan.

Front

Calculate the finance charge if the average daily balance is $789.49 and the APR is 18%.

Back

Finance Charge = (Average Daily Balance × APR / 365) × Number of Days in Billing Cycle = ($789.49 × 0.18 / 365) × 30 = $11.84.

Front

What is the formula for calculating the total payment on a loan?

Back

Total Payment = Monthly Payment × Number of Payments.