Question

Mason has an offer to buy an item with a sticker price of $14,800 by paying

8530 a month for 36 months. What interest rate is Mason being offered?

A 12.8%

B. 25.7%

C6.4%

d8,5%

Answer 1

8.83%

Explanation:

Using compound interest formula

A = P ( 1+ r) ^t where A = amount = 530 × 36 = $ 19080, P = the amount of the loan = $ 14800, t = 36 / 12 = 3 years

substitute the values into the equation

19080 = 14800 (1 + r) ^3

19080 / 14800 = (1 + r) ^3

1.2892 = (1 + r) ^3

∛(1.2892) = 1 + r

1.0884 = 1 + r

r = 1.0884 - 1 = 0.0884 × 100 = 8.83%

Answer 2

d 8,5%, the most probable, provided the error in the question is confirmed!!!

Explanation:

Mason has an offer to buy an item with a sticker price of P= $14,800.

He is to pay $8530 a month for 36 months.

Total amount paid by Mason will be

$8530*36= $307,080

This will be very outrageous compared to the sticker price!!!

If we presume he is paying yearly 8530 for 36 months or 3 years.

Then total amount paid will be 8530*3 = $25590

Also very high in my opinion.

Perhaps the dollar sign was wrongly typed as '8' in the question and he pays only $530 monthly,

Then the total amount paid will be $19,080

This is quite reasonable.

If the interest rate is compounded for n (n=3, 36 months = 3 years)

years, thus

19080= ((P*(1+i)^n) , meaning

19080 =((14800(1+i)^3), which when evaluated yields

i=8.8%