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Homework answers / question archive / Your favorite cousin bought a brand new couch during the holidays and decided to finance the purchase for $2,800

Your favorite cousin bought a brand new couch during the holidays and decided to finance the purchase for $2,800

Finance

Your favorite cousin bought a brand new couch during the holidays and decided to finance the purchase for $2,800. She signed a contract for a 2 year loan, which compounds daily at 24.9%. What is the total amount of interest that your cousin can expect to pay for the sofa over the life of the loan?

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Computation of Total Amount Paid using FV Function in Excel:

=fv(rate,nper,pmt,-pv)

Here,

FV = Total Amount Paid or Future Value = ?

Rate = 24.9%/360

NPER = 2 years * 360 days = 720 days

PMT = 0

PV = $2,800

Substituting the values in formula:

=fv(24.9%/360,720,0,-2800)

FV or Total Amount Paid or Future Value = $4,606.40

 

Computation of Total Interest Paid:

Total Interest Paid = $4,606.40 - $2,800 = $1,806.40

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