Question

Suppose you want to buy a new set of furniture at a store, which offers you a monthly installment plan but requires that you make the first payment on the day you make the purchase. The entire furniture set costs $9,200. The loan period is for 5 years, and the interest rate is 19.99% compounded monthly. What are the monthly payments?

Answer 1

The question pertains to annuity due since the first installment is made on the day of the purchase.

This can also be solved using a financial calculator by inputting the below into the calculator:

The financial calculator is set in the end mode. Annuity due is calculated by setting the calculator to the beginning mode (BGN). To do this, press 2^nd BGN 2^nd SET on the Texas BA II Plus calculator.

Present value= $9,200

Time= 5 years*12= 60 months

Interest rate= 19.99%/12= 1.67

The question is solved by entering the below in the financial calculator:

PV= $9,200; N= 60; I/Y= 1.67

Press CPT and PMT to calculate the monthly installment.

The monthly installment on the loan is $239.94.