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East York Electronics is selling a multimedia system for a cash price of $7,700 plus HST...

East York Electronics is selling a multimedia system for a cash price of $7,700 plus HST of 13% for a total of $8,701. Alternatively, they offer financing at 1.5% monthly with a payment of $270.25 for 48 months. What are the hidden fees in the financing.

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Answer #1

Total Cash price = $8701.

With financing, you have to pay $270.25 monthly for 48 months with mothly interest of 1.5%

Present value of the Monthly payment =

A = Monthly payment = $270.25

i = Monthly interest = 1.5% or 0.015

n = total months = 48 months

hence

Present value of the Monthly payment =

=>Present value of the Monthly payment=$9200

hidden fees in the financing = Present value of payments under Financing- Cash price

=>hidden fees in the financing = $9200-$8,701=$499

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