You buy some furniture for $1200.You have 2 options: pay the $1200 today or make 12 monthly payments (made at the end of every month).For the 2^nd option,the furniture store will charge you an administration fee of $72.Thus,your monthly payment will be 1272 ¸ 12 = $106.Which of the following statements is closest to the truth if you were to choose option 2? (All interest rates are j₁₂)

Question

Quizplus · Accepted Answer

The interest rate can be calculated using the formula for the present value of an annuity. Solving for the interest rate that equates the present value of the monthly payments to the initial cost plus the administration fee gives approximately 10.90%.

You Buy Some Furniture for $1200