Question

Tim Worker buys a new sofa for $629.95. He pays 25% down and takes an installment loan to complete the purchase. He makes 12 payments which include his principal and a $60.00 finance charge. What is the amount financed and what is the APR on his loan?

Amount financed = $__________
APR (to the nearest tenth) = _________%

Answer 1

The amount of the down payment is
629.95×0.25=157.49

Amount financed
629.95−157.49=472.46

Monthly payment
(472.46÷12)+(60÷12)=44.37

Total monthly payments
44.37×12=532.44

Finance charge
532.44−472.46=59.98

APR
59.98÷472.46=0.127×100=12.7%

Answer 2

Amount financed = $ 472.4625

APR = 12.7%

Explanation:

Given,

The original price of the sofa = $629.95,

Down payment percentage = 25% ,

∴ Amount of down payment = 25% of 629.95

`=(25* 629.95)/(100)`

`=(629.95)/(4)`

= $ 157.4875,

So, the amount financed = $629.95 - $ 157.4875 = $ 472.4625,

Now, finance charge = $ 60,

Thus, APR =
`\frac{\text{Finance charge}}{\text{Amount financed}}* 100`

`=(60)/(472.4625)* 100`

`=(6000)/(472.4625)`

= 12.6994 %

≈ 12.7%