Stereo Inc. sells a stereo system for $300 down and monthly payments of $40 for the next 2 years. If the interest rate is 3.25% per month, find:
a) The cost of the stereo.
b) The total amount of interest paid.
I am having trouble figuring out the correct layout.
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To solve this problem, we need to break it down into two steps: finding the cost of the stereo, and then calculating the total amount of interest paid.
a) To find the cost of the stereo, we need to calculate the sum of the down payment and the total amount paid in monthly installments over the 2-year period.
Down payment: $300
Monthly payment: $40
Number of months: 2 years = 2 * 12 months = 24 months
Total amount of monthly payments: $40 * 24 months = $960
Cost of the stereo = Down payment + Total amount of monthly payments
Cost of the stereo = $300 + $960 = $1260
Therefore, the cost of the stereo is $1260.
b) To calculate the total amount of interest paid, we need to find the difference between the total amount paid and the cost of the stereo.
Total amount paid = Down payment + Total amount of monthly payments
Total amount paid = $300 + $960 = $1260
Total interest paid = Total amount paid - Cost of the stereo
Total interest paid = $1260 - $1260 = $0
Therefore, the total amount of interest paid is $0.
In summary:
a) The cost of the stereo is $1260.
b) The total amount of interest paid is $0.