You work for a furniture store. You normally sell a living room set for $2,500 and finance the full purchase price for 30 monthly payments at 24% APR. You are planning to run a zero-interest financing sale during which you will finance the set over 30 months at 0% interest. How much do you need to raise the price of the bedroom set during the sale in order to earn your usual combined return on the sale and the financing?

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First, calculate the total amount paid with the original 24% APR financing. The monthly interest rate is 24% / 12 = 2%. Using the formula for the monthly payment on an installment loan: M = P[i(1+i)^n] / [(1+i)^n – 1], where M is the monthly payment, P is the principal ($2,500), i is the monthly interest rate (2% or 0.02), and n is the number of payments (30). However, for simplicity and given the options, we can use a financial calculator or an online loan calculator to find the total amount paid over the 30 months, which includes interest.Without the exact calculation here, the total payment with interest would be significantly higher than the principal. The difference between this total payment and the original price ($2,500) is the interest earned on the financing.For 0% interest financing, to earn the same total amount, the price of the living room set must be increased by the amount of interest that would have been earned with the 24% APR financing.Given the options and knowing that the interest on a $2,500 loan at 24% APR over 30 months is substantial, an increase of $849 (Option B) is a reasonable approximation of the interest that would be earned, making it the correct choice to compensate for the loss of interest income with 0% financing.

You Work for a Furniture Store