Solve the Problem Using the Rule of 78

question 97

Multiple Choice

Solve the problem using the rule of 78.
-Jamal has a 60-month fixed installment loan, with a monthly payment of $276.00. The amount he borrowed was $11,500. Instead of making his 39th payment, Jamal is paying the remaining balance
On the loan. How much interest will Jamal save?

• A)$734.53
• B)$638.72
• C)$600.34
• D)$574.85

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Definitions:

Present Value

The contemporary valuation of a future monetary sum or cash flow series, as determined by an agreed-upon rate of return.

Future Cash Flows

Estimated amounts of money expected to be received or paid out over future periods.

Cash Payback Method

A financial analysis method used to determine the time needed for an investment to generate cash flows sufficient to recover the initial investment cost.

Present Value

The current value of a future amount of money or stream of cash flows given a specified rate of return.