Question

On April 1, 2018, John Vaughn purchased appliances from the Acme Appliance Company for $600. In order to increase sales, Acme allows customers to pay in installments and will defer any payments for six months. John will make 18 equal monthly payments, beginning October 1, 2018. The annual interest rate implicit in this agreement is 24%. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.)

Required: Calculate the monthly payment necessary for John to pay for his purchases. (Do not round intermediate calculations. Round your final answers to nearest whole dollar amount.)

Answer 1

Solution:

Present Value = Annuity amount * Present Value of $1
= Annuity amount * PVF(5,2%)
= Annuity amount * 0.90573
= $600

(Note: present value annuity = (600/0.90573) = $662)
Present value annuity = ( Annuity amount * Present value of an ordinary annuity of $1)
$662 =(Annuity amount * PVIFA(18,2%))
$662 = Annuity amount * 14.99203
Annuity amount = ($662/14.99203)
Annuity amount =$44
Thus the monthly payment for J to pay for the purchase made is $44