Question

6. You purchase a riding lawnmower for $1,402,

including sales tax. You pay 10% down and agree to pay
the balance in 12 equal monthly payments. If the finance
charge on the balance is 10.5%, find the size of the
monthly payment for this purchase. Round to the nearest
cent.
39
a. $111.23
b. $123.58
c. $117.49
d. $140.20

Answer 1

The size of the monthly payment for purchasing a riding lawnmower for $1,402, including sales tax and making a 10% down payment, is a. $111.23.

We can determine the monthly payment by using the following formula:

P =
`(r(Pv))/(1 - (1+r)^(-n))`

Where:

P = Monthly Payment

r = rate per period = 10.5%

PV = Present Value = $1,261.80 ($1,402 x 90%)

n = number of periods = 12 months

P =
`(0.105(1,261.8))/(1 - (1+0.105)^(-12))`

P = $111.23

You can also use an online finance calculator to determine the monthly payment.

N (# of periods) = 12 months

I/Y (Interest per year) = 10.5%

PV (Present Value) = $1,261.80 ($1,402 x 90%)

FV (Future Value) = $0

Results:

PMT = $111.23

The sum of all periodic payments = $1,334.71

Total Interest = $72.91

Thus, the size of the monthly payment for this purchase is Option A.