Amanda just took out a loan for $950 at a 7.2% apr, compounded monthly, to
buy a new set of tires for her car, and she has agreed to make monthly
payments of $38.50 to pay off the loan. if she changes her monthly payment
to $93.00, how much faster would she be able to pay off the loan?

a. 27 months faster
b. 38 months faster
c. 16 months faster
d. 11 months faster

C. 16 months faster

Step-by-step explanation:

You can solve this using a Financial calculator( TI BA II plus in this case)

First, find number of months if recurring monthly payment is $38.50;

Amount borrowed ; PV = -950

Monthly rate ; I/Y  = 7.2%/12 = 0.6%

Monthly payment; PMT = 38.50

Future value ; FV = 0

Total duration;  press CPT, N = 26.785  OR 27 months

Next, find number of months if recurring monthly payment is $93;

Amount borrowed ; PV = -950

Monthly rate ; I/Y  = 7.2%/12 = 0.6%

Monthly payment; PMT = 93

Future value ; FV = 0

Total duration;  press CPT, N = 10.573 OR 11 months

Difference = 27 -11 = 16

Therefore, she would be able to pay off the loan 16 months faster.

89

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