Annuity Help - Financial Math

Question

An ad in an electronics store window reads, “Big-screen television: Was $3270: now $2890, or $500 down and $122.81 for 24 months on approved credit.” What is the annual interest rate, compounded monthly, of the store’s payment plan?

Answer 1

the amount being financed is 2890 - 500 = $2,390 (original amount)

the final amount = 24 x 122.81 = $2,947.44

t = 2 years

n = 12 times per year

r = ? required

 

formula is a = p (1 + r/n)^nt

2947.44 = 2390 x (1 + r/12)²⁴

ln 1.233 = 24 ln (1+r/12)

0.0087 = ln (1 + r/12)

e^0.0087 = 1 +r/12

1.00877 - 1 = r/12

r = 0.1053 = 10.53%