Question

Jackson purchased $5,200 worth of electronic equipment from BetterBuy on their deferred payment plan. The plan

allows the customer to make no down payment and no payment at all for five months. If the entire amount is paid in
full before the five month deferment ends, the finance charge with an APR of 19.8% is applied each month going
back to the first month. How much would it cost Jackson in finance charges if he misses the 5-month deadline?

Answer 1

If Jackson misses the 5-month deadline, it will cost him $429 in finance charges.

Explanation:

Since Jackson purchased $ 5,200 worth of electronic equipment from BetterBuy on their deferred payment plan, and the plan allows the customer to make no down payment and no payment at all for five months, while if the entire amount is paid in full before the five month deferment ends, the finance charge with an APR of 19.8% is applied each month going back to the first month, to determine how much would it cost Jackson in finance charges if he misses the 5-month deadline the following calculation should be performed:

5,200 x (1 + (0.198 / 12 x 5)) = X

5,200 x (1 + (0.0165 x 5)) = X

5,200 x (1 + 0.0825) = X

5,200 x 1.0825 = X

5.629 = X

5,629 - 5,200 = 429

Therefore, if Jackson misses the 5-month deadline, it will cost him $429 in finance charges.