Question

Sum-R-Fun sells a jet ski for $6,700 which includes tax. They offer an installment plan that requires 20% down. After that, the customer would pay

$200 per month for three years. What is the down payment? What is the total of all monthly payments? What is the total cost of the jet ski on the installment plan? What is the finance charge?

Answer 1

1) The initial down payment is $1,340

2) The total monthly payment is $7,200

3) The total cost of the jet ski on the installment plan is $8,540

4) The finance charge is $1,840

Explanation:

The financing model of Sum-R-Fun for a jet ski are as follows;

Sum-R-Fun selling price of a jet ski = $6,700

The initial down payment = 20% of the selling price of the jet ski

The amount the customer pays per month = $200

The duration or the period of the monthly payment = 3 years

1) The initial down payment = 20/100 × $6,700 = $1,340

2) The total monthly payment = Number of months per year × Number of years × The monthly (installment) payment

∴ The total monthly payment = 12 × 3 × $200 = $7,200

3) The total cost of the jet ski on the installment plan = The initial down payment + The total monthly payment

∴ The total cost of the jet ski on the installment plan = $1,340 + $7,200 = $8,540

4) The finance charge is the cost of the credit given as follows;

The finance charge = The total cost of the jet ski on the installment plan - Sum-R-Fun selling price of a jet ski

∴ The finance charge = $8,540 - $6,700 = $1,840