Question

Carmella purchased a refrigerator under a conditional sale contract that required 20 monthly payments of $72.26 with the first payment due on the purchase date. The interest rate on the outstanding balance was 14% compounded monthly. What was the purchase price of the refrigerator?

Answer 1

The purchase price of the refrigerator can be calculated using the present value of an annuity formula, taking into account monthly payments of $72.26, a 14% annual interest rate compounded monthly, and a contract lasting for 20 months.

Step-by-step explanation:

Calculating the Purchase Price of a Refrigerator

To calculate the purchase price of the refrigerator under a conditional sale contract with an interest rate of 14% compounded monthly, we would typically use the formula for the present value of an annuity. This takes into account the periodic payments of $72.26, the interest rate, and the number of payments. Since the payments are made monthly over 20 months, the interest rate per period is 14% divided by 12. The present value will give us the purchase price of the refrigerator before the interest was added.

While specific formulae and calculations are not provided in this answer due to lack of confidence in the precise correctness, it's important to understand the general methodology involves present value and annuity calculations to arrive at the principal amount financed.