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In: Finance

Sarah wants to buy equipment that is available at two stores. the price of the exercise...

Sarah wants to buy equipment that is available at two stores. the price of the exercise equipment is the same at both stores. PQR health would let her make quarterly payments of $4,780 for 6 years at a quarterly interest rate of 2.97%. Her first payment to PQR health would be due immediately. If ABC would let her make equal monthly payments of $2,190 for 5 years and if her first payment to ABC would be in 1 month, then what is the monthly interest rate that Sarah would be charged by ABC?

A. 1.51%

B. 1.62%

C. 1.69%

D. 1.74%

E. None of the above within .01 percentage point is the correct answer

Solutions

Expert Solution

Calculation of price of the equipment:

Rate = 2.97%
PMT = $4780
Nper = 6 * 4 = 24
FV = 0

Price of the equipment can be calculated by using the following excel formula:
=PV(rate,nper,pmt,fv)
=PV(2.97%,24,-4780,0)
= $81,214.12

Calculation of monthly interest rate:

Nper = 5 * 12 = 60
PMT = $2190
PV = $81,214.12
FV = 0

Monthly interest rate can be calculated by using the following excel formula:
=RATE(nper,pmt,pv,fv)
=RATE(60,2190,-81214.12,0)
= 1.74%

Monthly interest rate = 1.74%

jeff jeffy answered 2 years ago
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