Question

You have just bought a new flat-screen TV for $3,000, and the store you bought it from offers to let you finance the entire purchase at an annual rate of 14 percent compounded monthly. If you take the financing and make monthly payment of $100, how long will it take to pay the loan off? How much will you pay in interest over the life of the loan?

How would you calculate this using a BA II plus calculator?

Answer 1

Calculating Time Period Required,

Using TVM Calculation,

N = [PV = 3,000, FV = 0, PMT = -100, I = 0.14/12]

N = 37.14 months

Time Period = 37.14 months

Answer 2

To calculate the time it will take to pay off the loan and the total interest paid using a BA II plus calculator, follow these steps:

1. Press the "2nd" button, then the "P/Y" button. Enter "12" and press "Enter". This sets the calculator to compound interest monthly.

2. Press the "2nd" button, then the "C/Y" button. Enter "12" and press "Enter". This sets the calculator to assume monthly payments.

3. Press the "PV" button and enter the present value of the loan, which is -$3,000 (the negative sign indicates a cash outflow). Press the "Enter" button.

4. Press the "I/Y" button and enter the annual interest rate, which is 14%. Press the "Enter" button.

5. Press the "PMT" button and enter the monthly payment, which is -$100 (again, the negative sign indicates a cash outflow). Press the "Enter" button.

6. Press the "CPT" button and then the "N" button. This will calculate the number of months it will take to pay off the loan, which is 38.62 months (rounded up to 39 months).

7. To calculate the total interest paid over the life of the loan, multiply the monthly payment by the number of months and then subtract the initial loan amount. This gives the total interest paid, which is $1,852.

Therefore, it will take approximately 39 months to pay off the loan with monthly payments of $100. The total interest paid over the life of the loan will be $1,852.