Concept explainers
Write out your response to each exercise.
Study the table below, which pertains to a 12-month loan. The column-3 entries are designed so that they are in the same ratios as the column-2 entries but will add up to 1 because their denominators are all equal to
(This is the origin of the term “rule of 78.”)
Month | Fraction of Loan Principal Used by Borrower | Fraction of Finance Charge Owed |
1 | 12/12 | 12/78 |
2 | 11/12 | 11/78 |
3 | 10/12 | 10/78 |
4 | 9/12 | 9/78 |
5 | 8/12 | 8/78 |
6 | 7/12 | 7/78 |
7 | 6/12 | 6/78 |
8 | 5/12 | 5/78 |
9 | 4/12 | 4/78 |
10 | 3/12 | 3/78 |
11 | 2/12 | 2/78 |
12 | 1/12 | 1/78 |
|
Suppose the loan is paid in full after eight months. Use the table to determine the unearned fraction of the total finance charge.
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Mathematical Ideas (13th Edition) - Standalone book
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