The manager of Steve's Audio has approved Daisy's application for 24 months of credit with maximum monthly payments of $45.If the APR is 19.2 percent, what is the maximum initial purchase that Daisy can buy on credit?

Question

Quizplus · Accepted Answer

To find the maximum initial purchase, we need to calculate the present value of an annuity. The formula for the present value of an annuity is: PV = PMT × [(1 - (1 + r)^-n) / r], where PMT is the monthly payment, r is the monthly interest rate, and n is the number of payments. The monthly interest rate is 19.2%/12 = 1.6% = 0.016. Plugging in the values: PV = $45 × [(1 - (1 + 0.016)^-24) / 0.016] = $890.99.

The Manager of Steve's Audio Has Approved Daisy's Application for 24