You wish to buy a $9,000 dining room set. The furniture store offers you a 3-yea

Question

You wish to buy a $9,000 dining room set. The furniture store offers you a 3-year loan with an 10 percent APR. What are the monthly payments?

How would the payment differ if you paid interest only? (Do not round intermediate calculations and round your final answer to 2 decimal places.)

Payment                                            $ per month

Phoebe realizes that she has charged too much on her credit card and has racked up $4,900 in debt. If she can pay $250 each month and the card charges 17 percent APR (compounded monthly), how long will it take her to pay off the debt? (Do not round intermediate calculations and round your final answer to 2 decimal places.)

Explanation / Answer

Since rate is compounded monthly we divide it by 12 and multipy time period by 12

APR = 10%; Effective Rate = 10/12 = 0.83%

PV = $9000 ; n = 3 * 12 = 36 monthly periods

PV interest rate factor for uniform series payment = [(1+i)n - 1]/[i*(1+i)n]

                     = [(1+0.0083)36 - 1]/[0.0083* (1+0.0083)36] = 30.991

PMT = payment per period

PV = PMT * PV interest rate factor

PMT = 9000/30.991 = $290.405

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APR = 17%; Effecitve rate = 17/12% = 1.42%

PV = PMT * PV interest rate factor

PV interest rate factor = 4900/250 = 19.6

PV interest rate factor for uniform series payment = [(1+i)n - 1]/[i*(1+i)n]

                     = [(1+0.0142)n - 1]/[0.0142 * (1+0.0142)n] = 19.6

Solvinf for n we get 23 months

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