Asked by Canon Graef on Jun 14, 2024
Verified
You work for a furniture store. You normally sell a living room set for $2,500 and finance the full purchase price for 30 monthly payments at 24% APR. You are planning to run a zero-interest financing sale during which you will finance the set over 30 months at 0% interest. How much do you need to charge for the bedroom set during the sale in order to earn your usual combined return on the sale and the financing?
A) $2,500
B) $2,827
C) $3,349
D) $3,437
E) $3,784
APR
APR, or Annual Percentage Rate, is the annual rate charged for borrowing or earned through an investment, inclusive of any fees or additional costs associated with the transaction.
Zero-Interest Financing
A financing arrangement where the borrower does not pay any interest on the borrowed amount, often used as a promotional strategy by retailers.
Monthly Payments
Regular payments made each month, often associated with loans or leases, intended to repay borrowed money plus any applicable interest.
- Scrutinize and compare assorted savings and payment possibilities to facilitate informed financial decisions.
Verified Answer
KP
Kayla PattersonJun 20, 2024
Final Answer :
C
Explanation :
The usual return includes both the sale price and the interest earned from financing at 24% APR over 30 months. With 0% interest financing, the entire return must come from the sale price. To find the equivalent sale price, calculate the total amount paid with interest at 24% APR over 30 months and set this as the sale price for 0% interest financing. The correct calculation involves finding the future value of the loan with interest, which equals $3,349. This ensures the store earns the same total amount from the sale.
Learning Objectives
- Scrutinize and compare assorted savings and payment possibilities to facilitate informed financial decisions.