Question

Installment Buying TV Town sells a big screen smart HDTV for $600 down and monthly payments of $30 for the next 3 years. If the interest rate is 1.25% per month on the unpaid balance, find (a) the cost of the TV. (b) the total amount of interest paid.

Answer 1

Answer:

(a). $1465.42

(b). $214.58

Step-by-step explanation:

We have been given that installment Buying TV Town sells a big screen smart HDTV for $600 down and monthly payments of $30 for the next 3 years. The interest rate is 1.25% per month on the unpaid balance.

(a) To find the cost of the TV, we will use monthly payment formula.

$R=\frac{Pi}{1-(1+i)^{-n}}$, where,

R = Periodic payment,

P = Loan amount,

i = Monthly interest rate in decimal form,

n = Number of total payments.

$n=3\times 12=36$

$1.25\%=\frac{1.25}{100}=0.0125$

$30=\frac{P*0.0125}{1-(1+0.0125)^{-36}}$

$30=\frac{0.0125P}{1-(1.0125)^{-36}}$

$30=\frac{0.0125P}{1-0.6394091578134724264}$

$30=\frac{0.0125P}{0.3605908421865275736}$

$10.817725265595827208=0.0125P$

$0.0125P=10.817725265595827208$

$P=\frac{10.817725265595827208}{0.0125}$

$P=865.41802124766617664$

$P\approx 865.42$

We know that total cost of TV would be equal to down payment plus amount of loan that is:

$865.42+600=1465.42$

Therefore, the total cost of the TV would be $1465.42.

(b). First of all, we need to find total amount paid in 3 years by multiplying amount of each monthly payment by 36 (3 years equal to 36 months).

$\ 30\times 36=\ 1080$

To find the total amount of interest paid, we will subtract amount of loan from total payment.

$\ 1080-\ 865.42=\ 214.58$

Therefore, the total amount paid in interest would be $214.58.