Question

Your family is considering buying a utility shed. The cash price is $2,410.00. You will make a down payment of 5 percent of the cash price. You will take out an installment loan to cover the remainder. You will make monthly payments of $85.00 for 36 months. The annual percentage rate for the loan is %. (Round your answers to two decimal places.)

Answer 1

Answer:

25.18%

Step-by-step explanation:

The problem is asking for the Annual Percentage Rate (APR). This rate refers to the interest rate that the person will be paying every year.

First, you need to get the 5% amount of cash from $2,410.

So, $2,410 × 5% (0.05) = $120.50

You have to subtract the answer from $2,410, in order to get the answer.

So, $2,410 - $120.50 = $2,289.50 (this refers to the 5% of the cash price)

Next, you have to get how much you have to pay per month, excluding the interest rate.

So, divide $2,289.50 by 36 months, the answer is $63.60 per month.

If you pay $85 per month, this means that you have to subtract $63.60 from $85 in order to get the amount of cash representing the interest rate.

So, $85 - $63.69 = $21.40 (the amount of cash representing the  interest rate)

Next, get the percentage of $21.40 from $85:

$21.40 ÷ $85 = 0.2518 or 25.18% (this is the monthly interest rate, which can also be considered the annual interest rate for the loan)

This explains the answer.