Stereo Inc. sells a stereo system for $500 down and monthly payments of $60 for the next 4 years. If the interest rate is 1.75% per month, find:
a) The cost of the stereo.
b) The total amount of interest paid.
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Answer
To find the cost of the stereo, we need to calculate the total amount paid in monthly payments over the 4-year period.
a) First, let's find the total amount paid in monthly payments.
Since the monthly payment is $60 and the payment is made for 4 years, which is 48 months, the total amount paid in monthly payments can be calculated as follows:
Total amount paid in monthly payments = Monthly payment * Number of months
= $60 * 48
= $2,880
Thus, the total amount paid in monthly payments is $2,880.
To find the cost of the stereo, we need to add the down payment to the total amount paid in monthly payments:
Cost of the stereo = Down payment + Total amount paid in monthly payments
= $500 + $2,880
= $3,380
Therefore, the cost of the stereo is $3,380.
b) To find the total amount of interest paid, we need to subtract the initial amount financed from the total amount paid.
The initial amount financed can be calculated by subtracting the down payment from the cost of the stereo:
Initial amount financed = Cost of the stereo - Down payment
= $3,380 - $500
= $2,880
The total amount of interest paid can be calculated as follows:
Total amount of interest paid = Total amount paid - Initial amount financed
= $2,880 - $2,880
= $0
Therefore, the total amount of interest paid is $0.