Sam is paying off his eight-year, $15,360 loan in semiannual installments. the loan has an interest rate of 9.58%, compounded semiannually, and a service charge of $1,294.64. once the loan has been fully paid off, what percentage of the total finance charge will the service charge be? round all dollar values to the nearest cent.

a.
5.48%
b.
8.43%
c.
18.55%
d.
15.65%

We are given with
P = $15,360
n = 8 years or 16 semi-annuals
r = 9.58% compounded semiannually
S = 1294.64

The future amount of the loan is
F = P (1 + i)^n
i should be the effective interest rate of r
n should be the number of payments

F = 15360 (1 + 9.58/2) ^16
Solve for F and divide by the service charge to the answer

Secured loans are protected by collateral security. examples: title loans where the borrower uses the car title as collateral security interest rates are lower and repayments are longer therefore risk is low as a collateral security is given as guarantee to the bank in case of failure to pay the loanunsecured loans are not protected by collateral security but it is given on the creditworthiness of the borrower, trusting that she/he will pay on time. examples; payday loans is a short term loan where the borrower lends money from the bank and pays is back when the borrower receives his/her wages.interest rates are high and repayments are shorter. but the risk is high as no collateral security is given as a guarantee to the bank for payment of the loan