Really need help with this: You purchase a computer for $875.00 plus 5% sales tax. You decide to finance it through the store's 0% program for 12 months. The terms state that you must pay $100.00/month and that if you miss a payment, you will be assessed a late fee of $39.00 plus the interest accrued to that point at a 14.25% APR. If you miss a payment in the eighth month, how much interest will you be charged?
(Please explain how you get the answer, I can't find anyone who can get it.)
$83.13
$16.63
$87.28
$20.78
total cost = 1.05(875) = 918.75
so you made 7 payments of 100, leaving you with a balance of 218.75 when the 8th payment is due
Penalty is 39 + .1425(218.75) = 70.17
Your wording does not make it clear, on what amount the 14.25% interest is charged. I assumed it would logically be on the outstanding balance.
That is the way it was written to me and I think that is why it is so confusing since I can't get any of the listed answers. The lesson doesn't give any instructions either. I think the 14.25% is charged on the $700 because he/she forfeited the 0%. I also got 70.17 but that is not one of the answers. I am stuck.
To calculate the interest charged if you miss a payment in the eighth month, we need to consider a few factors.
First, let's determine the total cost of the computer including the sales tax. The computer costs $875.00 and has a sales tax of 5%. So the sales tax amount is $875.00 * 5% = $43.75. Adding this to the purchase price gives us a total cost of $875.00 + $43.75 = $918.75.
Next, let's calculate the total amount financed. Since you decide to finance the computer, you are effectively borrowing the entire purchase price plus the sales tax amount. So the total amount financed is $918.75.
Now, let's calculate the interest charged for each month. The annual percentage rate (APR) is 14.25%, which means the monthly interest rate is 14.25% / 12 = 1.1875%. In the first month, the computer cost is $918.75, so the interest charged is $918.75 * 1.1875% = $10.91.
Since you are making monthly payments of $100.00, the principal balance decreases each month, and the interest charged will also decrease accordingly. To calculate the interest charged in the eighth month, we need to account for the decreasing principal balance.
In the eighth month, the principal balance will be $918.75 - ($100.00 * 7) = $218.75 (since you have made 7 payments).
Now, let's calculate the interest charged for the eighth month. The interest charged is $218.75 * 1.1875% = $2.60.
However, if you miss a payment, not only will you be charged interest, but you will also be assessed a late fee. In this case, a late fee of $39.00 will be applied. So the total interest charged will be $2.60 + $39.00 = $41.60.
Therefore, if you miss a payment in the eighth month, you will be charged $41.60 in interest.
So the correct answer is not listed among the options given.