Answer:
C. The present value of the remaining monthly payments discounted at 12%.
Explanation:
To answer the question I have used following values to workout
Original Sales Value = 500,000
Interest rate = 12%
Numbers of periods = 24
First I calculate the Equal annual installment payment by using following excel formula
=PMT(rate,nper,pv,[fv],[type])
Where
PMT = Equal Annual Payment
rate = Interst rate = 12%/12 = 1%
nper = Tota numbers of payment = 24 payments
pv = oroginal sales value = 500,000
FV = Value outstanding after 24 payments = 0
Type = The payment made at the start or end of the year ( 0 for the payment made at the end of the period and 1 for the payment made at the beginning of the period ) = 0
placing values in the formula
=PMT(1%,24,50,000,0,0)
= $23,536.74
Now use these values to make the schedule which is attached with this answer.
After six Payment
Outstanding value = 385,961.72
Original sales price = 500,000
Percentage of outstanding balance to original sales value = 385,961.72 / 500,000 = 0.77 = 77%
The reamining balance is above 75% of the original sales price.
Note:
A payment schedule is attached for reference
