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Homework answers / question archive / Peggy made a down payment of $400 toward the purchase of new furniture

Peggy made a down payment of $400 toward the purchase of new furniture

Finance

Peggy made a down payment of $400 toward the purchase of new furniture. To pay the balance of the purchase of new furniture. To pay the balance of the purchase price, she has secured a loan from her bank at 12%/yr compounded monthly. Under the terms of her finance agreement, she is required to make payments of $75.32 at the end of each month for 24 months. What was the purchase price of the furniture? 

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Computation of the present value:-

Present value = Monthly payment*((1-1/(1+rate)^n)/rate)

Here,

n = 24 periods (monthly)

Rate = 12%/12 = 1% (monthly)

Present value = $75.32*((1-1/(1+1%)^24)/1%)

= $75.32*21.2434

= $1,600.05

Purchase price of furniture = Present value + Down payment

= $1,600.05 + $400

= $2,000.05

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