Question

Suppose you want to buy a new set of furniture at a store, which offers you...

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?

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Homework Answers

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 2nd BGN 2nd 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.

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