Question

John bought a used truck for $4,500. He made an agreement with the dealer to put $1,500 down and make payments of $350 for the next 10 months. The extra cost paid by taking this deal is equivalent to what actual yearly rate of interest?
A. 3.6%
B. 63%
C. 33%
D. 36%

Please provide an explanation, thanks! :)

Answer 1

Answer:

(D) 36%

Step-by-step explanation:

Actual cost of truck = $4500

Down payment = $1500

Money left to be paid = 4500-1500 =  $3000

A = Monthly payments = 350

n = 10

Principal value (P) = 3000

Using formula,

A= $\frac{Pr(1+r)^{n}}{(1+r)^{n}-1}$

350 =$\frac{3000r(1+r)^{10}}{(1+r)^{10}-1}$

       = 36% (approx)

Hence (D) is correct.