   Chapter 13.II, Problem 50RE ### Contemporary Mathematics for Busin...

8th Edition
Robert Brechner + 1 other
ISBN: 9781305585447

#### Solutions

Chapter
Section ### Contemporary Mathematics for Busin...

8th Edition
Robert Brechner + 1 other
ISBN: 9781305585447
Textbook Problem

# Tim Houston purchased a wall unit for $2,400. He made a$700 down payment and financed the balance with an installment loan for 48 months. If Tim’s payments are $42.50 per month, use the APR formula to calculate what annual percentage rate he is paying on the loan. To determine To calculate: The annual percentage rate if Tim Houston purchased a wall unit for$2,400, with a down payment of $700 and financed the balance with an installment loan 48 months. Tim’s payment per month is$42.50.

Explanation

Given Information:

Tim Houston purchased a wall unit for $2,400, with a down payment of$700 and financed the balance with an installment loan 48 months. Tim’s payment per month is $42.50. Formula used: When the table to compute APR is not given, the annual percentage rate (APR) is computed by the formula: APR=72I3P(n+1)+I(n1) Where, I is finance charge on the loan, P is principal or amount financed and n is number of months of the loan. Calculation: Consider that purchase price is$2,400, down payment is $700 payment per month is$42.50, and number of monthly payments is 48.

Compute amount financed by substituting purchase price to $2,400 and down payment to$700.

Amount financed=Purchase priceDown payment=2,400700=$1,700 Hence, the amount financed is$1,700.

Compute the total payments by substituting payment per month to $42.50 and number of monthly payments to 48. Total amount of installment payments=Payment per month×Number of payments=$42.50×48=$2,040 Hence, the total payment is$2,040

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