Answer: option C. 14.55%
Explanation:
1) Total payments done:
Down payment + 10×montly payments = $20 + 10×$34 = $20 + $340 = $360
2) Interest paid
Total payments - original price = $360 - $320 = $40
3) Financed amount
Original price - down payment = $320 - $20 = $300
3) Percent interest
(Interest paid / financed amount ) × 100 = ($40 / $300) × 100 = 13.33%
4) Yearly rate
number of months in a year: 12
number of months to pay: 10 + 1 = 11
⇒ (Percent interest / 11) × 12 = (13.33% / 11) × 12 = 14.54%
Note that it has been assumed that the first monthly payment was made one month after the purchase, which leads to a total payment time of 11 months, that is why the divisor (denominator of the fraction is 11 and not 10).
