Question

Gastly’s refrigerator has stored it’s last frozen pizza; i.e., Gastly’s refrigerator is broken and no longer works. Gastly dashes to the nearest appliance store and looks at a new refrigerator for $1253.99. Unfortunately, Gastly doesn’t have
enough money in it’s rainy day fund to pay for the refrigerator. Gastly then take out an add-on loan for 3 years at an annual
rate of 23%.

(a) In general, what will be the monthly payments?
(b) If the lender offers a first month minimum payment of $42.84 and assume the method of calculating the minimum payment
is: the finance charge plus some percentage of the unpaid balance ($1252.99 for the first month). Find the percentage
of the unpaid balanced use to calculate the minimum payment.

Answer 1

Answer-(a)

Present value of the loan = $1253.99.

Total monthly payment = 3 year * 12 = 36

Annual rate = 23%

Monthly rate = 23%/12 = 1.9167% or 0.019167(r)

Let the monthly payment = A

Present value of the Annuity payment =

=> A or Monthly payment = $48.54 per month

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(b)

Finance charge for First month = $1253.99* 23%*1/12 = $24.03

Minimum payment = Finance +(% of total unpaid balance* Total Unpaid balance)

=>$42.84= $24.03+ (% of total unpaid balance* $1253.99)

=> % of total upaid balance = 1.50%