To determine the finance charge on a loan, we need to understand a few key terms:
1. Principal: This is the original amount of money borrowed.
2. Annual Percentage Rate (APR): This is the annual interest rate expressed as a percentage.
3. Loan Term: This is the duration for which the loan is taken, usually stated in years.
Given:
- Principal amount borrowed: [tex]$1000
- Annual interest rate (APR): 5% or 0.05 when expressed as a decimal
- Loan term: 1 year
To calculate the finance charge, which is the total amount of interest paid over the loan term, follow these steps:
1. Determine the interest rate as a decimal:
- Annual interest rate (APR) = 5% = 0.05
2. Calculate the total interest paid over the loan term:
- Interest paid = Principal × Annual interest rate × Loan term
- Interest paid = $[/tex]1000 × 0.05 × 1 year
3. Compute the interest paid:
- Interest paid = [tex]$50.0
Therefore, the finance charge on the loan, which is the amount of interest paid, is $[/tex]50.0.
To sum up the different components:
- The finance charge on the loan: [tex]$50.0 (this is the interest paid over the loan term)
- The amount of interest paid, stated in dollars: $[/tex]50.0
- The APR on the loan: 5%
- The amount of interest and principal in a loan: [tex]$50.0 (interest paid) + $[/tex]1000 (principal) = [tex]$1050
- The amount of principal paid, stated in dollars: $[/tex]1000
