a. Rent-to-own has a scheme to sell furniture on monthly installments for two years.

a. Rent-to-own has a scheme to sell furniture on monthly installments for two years. The APR quoted for this deal is 15.9% annual but with interest compounded monthly. You decided to buy some furniture for your office under this scheme. Your monthly payment installment is decided as $85 for two years. Calculate the total value of furniture you bought.

b. Jack sold goods worth $8,500 to one of his customer on credit. This customer is in financial difficulty and struck a deal to pay the money back with monthly installment of $770 at the end of each month for 12 months. What is the interest rate charged on this deal (APR)?

c. Peter decided to buy a used dealer certified car from the authorized car dealer. The car has a sticker price of $12,000 for sale. Peter a loan from his local bank for five years. Peter would need to pay a monthly payment of $158.04 per month for this car payable at the end of each month to the bank. Calculate the nominal or quoted interest rate charged on this loan (APR). Calculate the effective rate for this loan.

d. You recently used your credit card to buy a laptop for $2,500. Your credit card has an APR of 19.9%. You are paying only a minimum payment billed for $50 per month. If you do not use this card again, how long will it take you to pay off this loan? If instead you increase monthly payment to $60 per month, how many years will it take to pay off this loan?

Expert Solution

A-	total value of furniture =Using present value function in MS excel	pv(rate,nper,pmt,fv,type) rate = 15.9/12 = 1.325% nper =12*2 =24 pmt = -85 fv=0 type =0	PV(1.325%,24,-85,0,0)	$1,737.70

B-	Interest rate charged on deal -Per Month=using rate function in MS excel	rate(nper,pmt,pv,fv,type) nper =12 pmt =-770 pv =8500 fv =0 type =0	RATE(12,-770,8500,0,0)	1.31%
	Interest rate charged on deal-Per Year	(1.31*12)		15.72%

C-	nominal or quoted interest rate-Monthly	rate(nper,pmt,pv,fv,type) nper =60 pmt =-158.04 pv =12000 fv =0 type =0	RATE(60,-158.04,12000,0,0)	-0.74%
	nominal or quoted interest rate-Yearly	-.74%*12		-8.88%
	effective interest rate =(1+r/12)^n-1	(1+8.88%/12)^12-1	9.25%

D-	how long will it take you to pay off this loan in months=Using Nper function in MS excel	nper(rate,pmt,pv,fv,type) rate = 19.9/12 =1.6583% pmt =-50 pv=2500 fv =0 type =0	NPER(1.6583%,-50,2500,0,0)	107.43
	how long will it take you to pay off this loan in months=Using Nper function in MS excel			107 Months

jeff jeffy answered 2 years ago

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