Paul purchased a new television and VCR on September 1,1990, for $1,200 and used
ID: 2416051 • Letter: P
Question
Paul purchased a new television and VCR on September 1,1990, for $1,200 and used his father's MasterCard to pay for it. His father agreed to allow Paul to use the card based on his paying the balance within one year. The nominal interest rate on the card is 24% compounded monthly and re¬quires equal monthly payments. After six months of paying for these purchases, Paul decided, on March 1,1991, that he also could purchase a stereo for $800. Paul's father still insisted that Paul pay the total balance within one year from the date of the first purchase. Assume that the new purchase is to be immediately applied to the unpaid balance and Paul made the payment due at the end of March before purchasing the stereo. What is the amount of the payments for the first six months and the amount of the payments for the second six months? Use standard consumer loan calculations.
Explanation / Answer
Given data,
Payment regarding tv and vcr:
Present value = $1200
Let payment per month be x
period = 12 months
Interest Rate = 24% per annum = 2% per month
Formula,
PV = Monthly Payment * PVAF (2%, 12)
This implies,
$1200 = x * 10.57534
x = $113.4715
Payment regarding stereo:
Present value = $800
Let payment per month be y
period = 6 months
Interest Rate = 24% per annum = 2% per month
Formula,
PV = Monthly Payment * PVAF (2%, 6)
This implies,
$800 = y * 5.601431
y = $142.8206
Amount of payments for the first six months
= x * 6
= $113.4715 * 6
= $680.8292
Amount of payments for the next six months
= (x + y) *6
= ($113.4715 + $142.8206) * 6
= $256.2922 * 6
= $1537.753
Amount of payments for the first 6 months = $680.8292
Amount of payments for the second 6 months = $1537.753