Business Mathematics Brief 12th Edition by Stanley Salzman ,Gary Clendenen, Charles Miller

Exercise 102

Solve the following application problems using the Rule of 78. (See Example.)
Finding Unearned Interest and Balance Due
Aaron Ortego borrowed $6000, which he is paying back in 24 monthly payments of $295 each. With 9 payments remaining, he decides to repay the loan in full. Find (a) the amount of unearned interest and (b) the amount necessary to repay the loan in full. Use the Rule of 78.
SOLUTION

Find the amount of unearned interest as follows. The finance charge is $1080, the scheduled number of payments is 24, and the loan is paid off with 9 payments left. Solve as follows.

(b) When Ortego decides to pay off the loan, he has 9 payments of $295 left.

Ortego saves the unearned interest of $162 by paying off the loan early. Therefore, the amount needed to pay the loan in full is the sum of the remaining payments minus the unearned interest.

ASPHALT CRUMB Binston Asphalt borrowed $850,000 to purchase a machine that converts old tires into asphalt crumb for use as a base material under sports arenas. The company paid $200,000 of the cost up front and financed the balance with 36 monthly payments of $20,821.42 each. Find (a) the total installment cost, __________ (b) the finance charge, __________ (c) the unearned interest, __________ and (d) the amount needed to pay the loan in full after the 25th payment. __________