The manager of Furniture For Less has approved Mac's application for 36 months of credit with maximum monthly payments of $32.If the APR is 20.2 percent, what is the maximum initial purchase that Mac 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. Here, PMT = $32, r = 20.2%/12 = 0.016833, and n = 36. Plugging these values into the formula gives the present value, which is approximately $858.70.

The Manager of Furniture for Less Has Approved Mac's Application