Solve the problem using the rule of 78s.
-Caroline Jones took out a 48-month fixed installment loan of $21,000 to open a restaurant. She Began making monthly payments of $533.75. Carolineʹs business does better than expected and Instead of making her 27th payment, Caroline decides to repay her loan in full. What is the total
Amount due to pay off the balance?
A) $10,835.00
B) $10,348.64
C) $11,022.34
D) $10,301.25

Question

Quizplus · Accepted Answer

The rule of 78s is a method of calculating the amount of interest that has been paid on a loan. It is based on the assumption that the majority of the interest on a loan is paid in the early years of the loan. To calculate the amount of interest that has been paid on a loan using the rule of 78s, you multiply the remaining number of payments by the sum of the digits of the original number of payments. In this case, the remaining number of payments is 21 (48 - 27) and the sum of the digits of the original number of payments is 12 (4 + 8). Therefore, the amount of interest that has been paid on the loan is $21 * $12 = $252.To calculate the total amount due to pay off the balance of the loan, you subtract the amount of interest that has been paid from the original amount of the loan. In this case, the total amount due to pay off the balance of the loan is $21,000 - $252 = $10,835.00.

Solve the Problem Using the Rule of 78s