Aa Aa E 7. Calculating finance charges using the discount method and APR on a single-payment loan You are taking out a single-payment loan that uses the discount method to compute the finance charges. Computing the finance charges is done the same as the way they're computed using the simple interest method. Under the discount method, a borrower receives the principal less the finance charges. For example, if the principal is $4,000 and the finance charges are $480, the borrower will receive $ 4,480 . The following equation computes the finance charges on your loan: Fd = Fs = P x r X. t In the equation, Fd is the finance charge for the loan. What are the other values? P is the principal amount of the loan. r is the stated annual rate of interest. t is the term of the loan in years . You're borrowing $2,000 for a year with a stated annual interest rate of 12%. Complete the following table. (Note: Round your answers to the nearest dollar.) $2,000 240 Principal Finance charges Loan disbursement $ Total payback 1,760 2,000 You also want to calculate the APR (annual percentage rate) and compare it to the stated interest rate. APR = Average Annual Finance charge Average Loan Balance Outstanding Browse Catalog First, compute the average annual finance charge by dividing the total finance charge of $ 240 by the life of the loan, which is a year (1.0 year) = $ (Note: Round your answers to the nearest dollar). loan disbursement , in Next, as a single-payment loan, the average loan balance outstanding is constant at the this case, $ Complete the calculation. (Note: Round your answers to the nearest dollar and your percentage point to the nearest two decimal places.) APR = Average Annual Finance Charge Average Loan Balance Outstanding 12.00 % The APR is higher than the stated interest rate because the O O Discount method was used to calculate finance charges Formula to compute finance charges is the same for the discount and simple interest methods Term of the loan is more than six months Loan is a single-payment loan O