Question

Jane bought a $3,000 audio system and agreed to pay for the purchase in 10 equal annual installments beginning one year from today. The interest rate is 12%. What is the amount of the annual installment?

Answer 1

Answer:

Jane

The amount of the annual installment is:

$530.98

Explanation:

Present value of audio system = $3,000

Interest rate (r) = 12%

Number of years for installments (n) = 10 years

The future value = PV * (1 + r)∧n

= $3,000 * (1 + 0.12)∧10

= Future value of the audio system

= $9,318 ($3,000 * 3.106)

Jane will need to contribute $530.98 at the end of each period to reach the future value of $9,318.00.

From online financial calculator:

FV (Future Value) $9,318.00

PV (Present Value) $3,000.15

N (Number of Periods) 10.000

I/Y (Interest Rate) 12.000%

PMT (Periodic Payment) $530.98

Starting Investment $0.00

Total Principal $5,309.78

Total Interest $4,008.22