Wilson Furniture will sell a $6,000 dining room suite for 24 monthly payments of $250 each with the first payment due on the date of sale. If Wilson's immediately sells the contract to a finance company at a discount rate of 16.8% compounded monthly, how much money does Wilson's actually receive?

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Quizplus · Accepted Answer

The amount Wilson's receives is found by calculating the present value of an annuity, which is the series of 24 monthly payments of $250 each, discounted at a monthly rate of 16.8% divided by 12. The formula for the present value of an annuity is $PV = P \times \frac{1 - (1 + r)^{-n}}{r}$, where $P$ is the payment amount, $r$ is the monthly interest rate, and $n$ is the total number of payments. The monthly interest rate is $16.8\% / 12 = 1.4\%$, or $0.014$ in decimal form. Plugging the values into the formula gives $PV = 250 \times \frac{1 - (1 + 0.014)^{-24}}{0.014}$, which calculates to approximately $5,137.17.

Wilson Furniture Will Sell a $6,000 Dining Room Suite for 24