Answer:
12.12%
Step-by-step explanation:
Given:
Cash price = $500
Down payment = $100
Payments = $50 per month for 9 months
To find:
(A) Total installment price
(B) Amount of finance charge
(C) Annual percentage rate
Solution:
(A) Total installment price:
Total amount to be paid = Down payment + Payments for 9 months
Total amount to be paid = $100 + ($50 x 9)
Total amount to be paid = $550
Therefore, the total installment price is $550.
(B) Amount of finance charge:
The finance charge is the difference between the total amount to be paid and the cash price.
Finance charge = Total amount to be paid - Cash price
Finance charge = $550 - $500
Finance charge = $50
Therefore, the amount of finance charge is $50.
(C) Annual percentage rate:
To find the annual percentage rate, we need to use the following formula:
Finance charge = Total amount to be paid x Annual percentage rate x Time
Where time is the duration of the loan in years.
Since the loan is for 9 months, we need to convert it to years by dividing it by 12.
Time = 9/12
Time = 0.75 years
Substituting the given values, we get:
$50 = $550 x Annual percentage rate x 0.75
Annual percentage rate = $50 / ($550 x 0.75)
Annual percentage rate = 0.1212 or 12.12%
Therefore, the annual percentage rate is 12.12%.