Question

Cedric purchased a new refrigerator and stove at Home Depot for $3,729 on a deferred payment plan with no down

payment and no payment at all for three months. If the entire $3,729 is paid in full before three months is up, there is no

interest. If it is not paid in full within the three months, there is a finance charge with an APR of 25.5% applied each month

going back to the first month. If Cedric makes the full payment a week after the three months expired, what is the finance

charge?

a. $187.92

c. $116.80

b. $145.52

d. $242.81

Answer 1

To find the finance charge, we need to calculate the monthly interest rate, the number of months that have passed, and then multiply the remaining balance by the monthly interest rate. The finance charge is $116.80.

Step-by-step explanation:

To find the finance charge, we need to first calculate the monthly interest rate. We can do this by dividing the annual interest rate of 25.5% by 12 to get the monthly interest rate of 2.125%. Next, we calculate the number of months that have passed after the three-month period. Since Cedric makes the full payment a week after the three months expired, this means that four months have passed. Finally, we calculate the finance charge by multiplying the remaining balance (which is the total purchase amount of $3,729) by the monthly interest rate of 2.125%. This gives us a finance charge of $79.45. Therefore, the correct answer is option c. $116.80.

Answer 2

correct option is d. $242.81

Step-by-step explanation:

given data

APR = 25.5% =
`(25.5)/(12)` = 2.125

paid = $3,729

solution

we get here finance charge on the 1st month by multiplying 3,729 and now adding it to existing balance

so we get finance charge for the second and third months similarly as

APR ÷ 100 =
`(2.125 )/(100)` = 0.02125

so 1st

= $3,729 × 0.02125

= 79.25

and

$3,729 + $79.25 = $3808.24

so for next

= $3808.24 × 0.02125

= 80.93

and

$3808.24 + $80.93 = $3889.17

so for next

= $3889.17 × 0.02125

= 82.64

and

$3889.17 + $ 82.64 = $3971.81

so

finance charge = 3971.81 - 3729

finance charge = 242.81

so correct option is d. $242.81