The manager of Gloria's Boutique has approved Carla's application for 24 months of credit with maximum monthly payments of $70.If the APR is 14.2 percent,what is the maximum initial purchase that Carla can buy on credit?

Question

Quizplus · Accepted Answer

Using the formula for present value of an annuity:

PV = PMT[(1-(1/(1+r)^n))/r]

where PV is the present value, PMT is the monthly payment, r is the monthly interest rate (APR/12), and n is the number of months.

Substituting the given values:

PV = 70[(1-(1/(1+0.142/12)^24))/(0.142/12)]
PV = 1455.08

Therefore, the maximum initial purchase that Carla can buy on credit is $1,455.08, which is option C.

The Manager of Gloria's Boutique Has Approved Carla's Application for 24