Respuesta :
Finance charge is the amount it costs of borrowing money
The finance charge that will appear in each year's profit and loss expense in the lessee's books are;
[tex]\begin{array}{|c|cc|}\mathbf{Year}&&\mathbf{Finance \ Charge \ (Kshs)}\\&&\\First&&1.8\\&&\\Second&&1.499\\&&\\Third&&1.171\\&&\\Fourth&&0.814\\&&\\Fifth&&0.424\end{array}\right][/tex]
The total financial charge = 5 × 5.142 - 20.000 = 5.71
The annual percentage rate, APR, of an instalment payment is given as follows;
[tex]\dfrac{(1 - (1 + r)^{-5}}{r} \times 5.142 = 20.000[/tex]
Solving using a graphing calculator gives;
r = APR ≈ 0.09 = 9%
The calculation for charges each year is as follows:
Payment interest for the first instalment = 20 × 9% = 1.8
The principal of the first payment = 5.142 - 1.8 = 3.342
The loan balance = 20 - 3.342 = 16.658
Payment interest for the second instalment = 16.658 × 9% = 1.49922
Second payment principal = 5.142 - 1.49922 = 3.64278
Loan balance = 16.658 - 3.64278 = 13.01522
Payment interest for the third instalment = 13.01522 × 9% = 1.1713698
Third payment principal = 5.142 - 1.1713698 = 3.9706302
Loan balance = 13.01522 - 3.9706302 = 9.0445898
Interest for the fourth payment = 9.0445898 × 9% = 0.814013082
Fourth payment principal = 5.142 - 0.814013082 ≈ 4.327986918
Loan balance = 9.0445898 - 4.327986918 = 4.716602882
Fifth payment interest = 4.716602882 × 9% = 0.42449425938
Fifth payment principal = 5.142 - 0.42449425938 ≈ 4.718
Therefore, we have;
[tex]\begin{array}{|c|cc|}\mathbf{Year}&&\mathbf{Finance \ Charge \ (Kshs)}\\&&\\First&&1.8\\&&\\Second&&1.499\\&&\\Third&&1.171\\&&\\Fourth&&0.814\\&&\\Fifth&&0.424\end{array}\right][/tex]
Learn more about the actuarial method here:
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