Question

The Smiths bought new furniture that cost $3,298.00. The store offered them

an option of putting $600 down and making equal payments of $300 a month
for 10 months. Use the Federal Reserve System formula to find the APR the
Smiths will pay for taking this plan.

Answer 1

24.4%

Explanation:

m= 12

I= (300 X 10) - $2698 = $302 (Interest paid)

P= $2698 (amount borrowed)

n= 10 (number of payments to be made)

24.4%

Answer 2

10.99%.

Explanation:

We have been given that the Smiths bought new furniture that cost $3,298.00. The store offered them an option of putting $600 down and making equal payments of $300 a month for 10 months.

First of all, we will find amount paid by down-payments in 10 months.

`\$300* 10=\$3,000`

Total amount paid by Smiths:
`\$3,000+\$600=\$3,600`.

Now we will find amount paid in interest by subtracting initial amount from total amount.

`\text{Amount paid in interest}=\$3,600-\$3,298`

`\text{Amount paid in interest}=\$302`

10 months = 10/12 year =5/6 year.

Now, we will use simple interest formula to solve for interest rate.

`I=Prt`

`\$302=\$3,298*r*(5)/(6)`

`\$302=r*(\$16,490)/(6)`

`\$302*(6)/(\$16,490)=r*(\$16,490)/(6)*(6)/(\$16,490)`

`(1,812)/(\$16,490)=r`

`r=(1,812)/(\$16,490)`

`r=0.1098847786`

`r=0.1098847786* 100`

`r=10.98847786\%`

`r\approx 10.99\%`

Therefore, the annual interest rate is 10.99%.