I have a quick question.

Question

I have a quick question.

I keep getting confused in this topic.

Purchase down payment= $3000
add on number of payments = 18
price= $500
interest rate : 7%
FIND THE APR TO THE NEAREST HALF.

In my solution I am first calculating the total payment and then I get a 9000, once I am done with this, I calculate interest and then apply for the Finance charge formula.

However I am not getting anything close to the multiple choice given..

Could any one please help me solve this and show me?

Answer 1

To find the APR (Annual Percentage Rate) to the nearest half, you need to follow the correct steps. Let's break it down:

1. Calculate the total payment:
Since each payment is $500, and there are 18 payments, the total payment would be 18 x $500 = $9,000.

2. Calculate the finance charge (interest):
To calculate the finance charge, you need to find the difference between the total payment ($9,000) and the principal amount (the purchase down payment), which is $3,000 in this case. Therefore, the finance charge is $9,000 - $3,000 = $6,000.

3. Calculate the APR:
To find the APR, you need to determine the interest rate per payment period. Since there are 18 payments spread over a year, the payment period is 1 year / 18 = 1/18 of a year.

Now, to calculate the interest rate per payment period, divide the finance charge ($6,000) by the principal amount ($3,000) and multiply by 100 to convert it to a percentage:

Interest rate per payment period = ($6,000 / $3,000) x 100 = 200%

4. Round to the nearest half:
The interest rate per payment period is 200%. To find the APR to the nearest half, divide the interest rate by the number of payment periods in a year:

APR = (Interest rate per payment period) x (number of payment periods in a year) = 200% x 18 = 3600%

To round it to the nearest half, divide the APR by 2:

APR to the nearest half = 3600% / 2 = 1800%

So, the APR to the nearest half for this purchase is 1800%.

If your solution isn't matching the multiple-choice options given, please double-check your calculations and verify that you followed the correct steps outlined above.