Question

Carl purchased a $242 car stereo at Worst Buy. He paid $28 at the time of purchase and agreed to pay the balance in 12 e...


Carl purchased a $242 car stereo at Worst Buy. He paid $28 at the time of purchase and agreed to pay the balance in 12 equal monthly payments. The finance charge was 14% simple interest. What was the amount of each payment?

Answer

The actual price of the car studio = $242.  But since, $28 has already been paid, the initial value (or the principal amount) will be : $242 - $28 = $214.  Also, we are given :  Rate (r) = 14%  Time (t) = 12 months = 1 year.

Therefore, the total amount that needs to be paid is given by the formula :  A=P(1+rt)   A=214(1+(0.14).1)   A=214(1+(0.14))   A=214(1.14)   A=243.96 Now we get that the total payable amount, that is the principal amount + all the interest is $353.8.  Now this amount needs to be paid in 12 equal payments.  Therefore, the amount that needs to paid in each installment is :  {243.96}/{12}=20.33 So, each month Carl needs to pay $20.33

 

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