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

Finance Dec 08, 2020

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?

Expert Solution

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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