Question

You are at XYZ Store and want to buy a replacement oven for your broke one at home. The regular price for the oven you want is $1, 299.99 and is on sale 25% off. The cost for shipping and installing the oven is 199.99 (not part of the sale). After calculating the final price of the purchase there is a sales tax of 9.3%. You plan on financing this purchase with an annual interest rate of 22.5% for two years, based on the Formula for Determining the Monthly Payment of an Installment Loan answer the following:

-What is the total amount that needs to be borrowed.

-What is the total amount charged in Interest alone.

-Find the monthly payments.

-Once paid off how much did you actually pay for the Oven? (That is, what is the total cost of the oven?)

You have an XYZ Credit Card and has a rate of 28.4% and a balance of $2, 300. You are on a friends only vacation and you are having the time of your life! Unfortunately, you decided to look at your email on April 16 at 4am and find out that your boss wants you back in the office ASAP! As you scramble to find a return flight home you see the best option is a flight that costs $392! (Sorry, I know this is stressful.) You charge it to your XYZ Credit Card (on April 16), luckily you have already made the $230 payment on April 15.

-Using the Unpaid Balance Method, what is your credit card bill this month?

-Using the Unpaid Balance Method, compute the finance charge that will appear on the May credit card statement.

-Using the Average Daily Balance Method, compute the finance charge that will appear on the May credit card statement.

Answer 1

1)

Regular Price of Oven = $ 1,299.9900

Less: Discount (25%) = $   324.9975

Discounted Price = $ 974.9925

Add: Sales Tax(9.3%) = $ 90.6743

Total Price = $ 1,065.6668 Rounded off to $1,066

Total amount needs to be borrowed is $1,066

Principal (P) = $1,066

Interest Rate (r) = 22.5% per annum i.e 1.875% per month = (22.5/12)/100 = 0.01875

Tenure (n) = 2 years = 24 months (2 x 12)

EMI Formula = P x r x { [1 + r]^n / [(1 + r)^n - 1] }

= 1066 x 0.01875 x { [1+0.01875]^24 / [ (1+0.01875)^24 - 1] }

= 19.9875 x [ 1.561791 / (1.561791 - 1) ]

= 19.9875 x (1.561791 / 0.561791 )

= 19.9875 x 2.78

= 55.5652 = $ 55.57

Monthly Payments or Installments is $ 55.57

Total Amount = Monthly Installments x No. of Installments

= 55.57 x 24 = 1333.68

Total Interest = Total Amount - Principal = 1333.68 - 1066 = 267.68

Total Amount Charged in Interest Alone is S 267.68

Total Amount $ 1,333.68 + Shipping and Installation Charges $ 199.99 = Total Cost = $ 1,533.67

Actual Payment for the Oven is $ 1,533.67

2)

Credit Card Balance in beginning of the month April is $ 2,300

Interest Rate = 28.4% per annum = 28.4/12 = 2.3667% per month = 0.023667

April 1 - Opening Balance - 2300

April 15 - Add: Payments - 230

April 15 - Unpaid Balance - 2070

April 16 - Add: Flight Fare - 392

April 16 - Unpaid Balance - 2462

April 30 - Closing Balance - 2462

Credit Card Bill for the month of April, under Unpaid Balance Method is $ 2,462

Interest upon unpaid balance = 2462 x 0.023667 = 58.268154 = 58.27

Finance Charges the will appear on May Credit Card Statement is $ 58.27

Average Daily Balance Method

Date	No. of Days	Expenditures	Payments	Balance	Weighted Daily Balance	Calculations
April 1-Opening Balance	0	0	0	2300	0	2300x0
April 1 - April 15	15	0	0	2300	34500	2300x14
April15 - April 16	1	0	230	2070	2070	2070x1
April 16 - April 31	14	392	0	2462	34468	2462x14
Total	30	Weighted Daily Balance Sum	71038

Average Daily Balance = Weighted Balance Sum / 30 = 71038 / 30 = 2367.93

Interest = 2367.93 x 0.023667 = 56.0418 = 56.04

Finance Charges that will appear on May BIll, under Average Daily Balance Method is $ 56.04