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6. Calculating simple interest and APR on a single-payment loan You are taking out a single-payment loan that uses the simple interest method to compute the finance charge. You need to figure out what your payment will be when the loan comes due. The equation to calculate the finance charge is: Fs = Amount of Loanx Interest Ratex Term of Loan where Fs is the finance charge for the loan, and the term of the loan is inyears . Youre borrowing $4,000 for two years with a stated annual interest rate of 8%. Complete the following table. (Note: Round your answers to the nearest dollar.) Principal $4,000 Finance charge $ Total Payback $ Annual Percentage Rate (APR) You also want to calculate the APR (annual percentage rate) and compare it to the stated interest rate. First, compute the average annual finance charge by dividing the total finance charge by the life of the loan, which is two years (2.0 years). Enter this value in the following equation. (Note: Round your answers to the nearest dollar.) Next, as a single-payment loan, the average loan balance outstanding is constant at $4,000. Complete the calculation for APR and enter it in the following equation. (Note: Round your answers to the nearest dollar or whole percentage point.) APR = Average Annual Finance Charge / Average Loan Balance Outstanding = $ / $4,000 = % The stated interest rate and APR are because the: Term of the loan is fewer than five years Simple interest method was used to calculate finance charges Loan is a single-payment loan

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