Ask Question
3 February, 23:43

On April 1, 2018, John Vaughn purchased appliances from the Acme Appliance Company for $1,200. In order to increase sales, Acme allows customers to pay in installments and will defer any payments for six months. John will make 18 equal monthly payments, beginning October 1, 2018. The annual interest rate implicit in this agreement is 24%. Calculate the monthly payment necessary for John to pay for his purchases.

+4
Answers (1)
  1. 4 February, 00:17
    0
    The monthly payment necessary for John to pay for his purchases is $88.4 per month

    Explanation:

    Fixed Installment payment for a fixed period period of time with a specified interest rate is the type of annuity.

    According to given data

    Present value of appliance = PV = $1,200

    Numbers of Payments = n = 18 months

    Interest rate = r = 24% annually = 2% monthly

    Value on October 1, 2018 = 1200 x (1 + 2%) ^6-1 = 1,325

    Monthly payment can be calculated by using following fomula

    PV of annuity = P x [ (1 - (1 + r) ^-n) / r ]

    $1,325 = P x [ (1 - (1 + 2%) ^-18) / 2% ]

    $1,325 = P x [ (1 - (1 + 0.02) ^-18) / 0.02 ]

    $1,325 = P x [ (1 - (1.02) ^-18) / 0.02 ]

    $1,325 = P x [ (1 - (1.02) ^-18) / 0.02 ]

    $1,325 = P x 14.992

    P = $1,325 / 14.992

    P = $88.4
Know the Answer?
Not Sure About the Answer?
Get an answer to your question ✅ “On April 1, 2018, John Vaughn purchased appliances from the Acme Appliance Company for $1,200. In order to increase sales, Acme allows ...” in 📙 Business if there is no answer or all answers are wrong, use a search bar and try to find the answer among similar questions.
Search for Other Answers