Question

suppose that 19% add-on interest is charged on a purchase that is paid for in monthly installments over 5 years. the APR on this purchase is 31.7%

true or false?

Answer 1

Suppose, Monthly payment on 1,000 loan at 19% add on for 5 years

= (1000 + 1000 * 19% *5)/60 = 32.50

Monthly payment on loan of 1,000 at 31.7% APR is:

Monthly payment	=	[P × R × (1+R)^N ] / [(1+R)^N -1]
Using the formula:
Loan amount	P	$                                                              1,000
Rate of interest per period:
Annual rate of interest		31.700%
Frequency of payment	=	Once in 1 month period
Numer of payments in a year	=	12/1 =	12
Rate of interest per period	R	0.317 /12 =	2.6417%
Total number of payments:
Frequency of payment	=	Once in 1 month period
Number of years of loan repayment	=	5
Total number of payments	N	5 × 12 =	60
Period payment using the formula	=	[ 1000 × 0.02642 × (1+0.02642)^60] / [(1+0.02642 ^60 -1]
Monthly payment	=	$                                                              33.41

Monthly payment with APR is 33.41

Given statement is FALSE