Ramon Hernandez saw the following advertisement for a used Volkswagen Bug and de

Question

Ramon Hernandez saw the following advertisement for a used Volkswagen Bug and decided to work out the numbers to be sure the ad had no errors. Cash price $7,820 Down payment $0 Annual percentage rate 15.03% Deferred price $11,176.80 or 60 payments at $186.28 per month a. Calculate the amount financed ount finan 7820 b. Calculate the finance charge. (Do not round intermediate calculations. Round your answer to the nearest cent.) Finance change 3356.8 c. Calculate the APR by formula. (Do not round intermediate calculations. Enter your answer as a percentage rounded to 1 decimal place.) APR by formula

Explanation / Answer

APR = Finance Charges/ Amount Financed x 100
APR = $3356.8/7820 x 100 = $42.93
Look up in Table 14.1 Annual percentage rate per $100 its between 15% to 15.25%
APR = 15.03%
Alternative way of calculating APR
APR = ($7820 x 15.03%)/$7820 = $1175.346/7820 = 15.03%

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