Jerry buys a $2,700 motorcycle on a deferred payment plan.There is no down payment and no interest for 18 months.Jerry must make a minimum payment of $75 a month.To avoid a retroactive APR of 21%,he must pay the balance in full before the 18 months has passed.If he pays $75 each month,how much should he pay the last month to avoid the interest charges?

Question

Quizplus · Accepted Answer

Since Jerry needs to pay off the balance in full before the 18 months has passed, he has a total of 18 months to make payments.

Since he pays $75 each month, he will have paid a total of $75 x 18 = $1,350 by the end of 18 months.

To avoid the retroactive APR of 21%, Jerry should pay the balance in full by the end of the 18 months.

Therefore, he should pay a final payment of:

$2,700 (original price) - $1,350 (already paid) = $1,350

So the answer is B) $1,425, which is $1,350 for the remaining balance plus $75 for the final month's minimum payment.

Jerry Buys a $2,700 Motorcycle on a Deferred Payment Plan