2b. You decide to take advantage of the store's payment plan. The payment plan's terms are as follows: 18 equal monthly payments, 6% interest, compounded monthly. a) What is the total cost that you will end up paying for the Chromebook? b) What will your monthly payment be?
2b. You decide to take advantage of the store's payment plan. The payment plan's terms are as follows: 18 equal monthly payments, 6% interest, compounded monthly. a) What is the total cost that you will end up paying for the Chromebook? b) What will your monthly payment be?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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2b. You decide to take advantage of the store’s payment plan. The payment plan’s terms are as follows: 18 equal monthly payments, 6% interest, compounded monthly.
- a) What is the total cost that you will end up paying for the Chromebook? b) What will your monthly payment be?
![### Question 2a:
You decide to purchase a new touchscreen Chromebook. The price is listed at $499.99, but the salesperson tells you that everything in the store is 25% off today. What is the total price that you pay for the Chromebook (including 8% tax)?
### Question 2b:
You decide to take advantage of the store’s payment plan. The payment plan’s terms are as follows: 18 equal monthly payments, 6% interest, compounded monthly.
a) What is the total cost that you will end up paying for the Chromebook?
b) What will your monthly payment be?
### Explanation:
1. **Calculating Discounted Price and Total Tax (Question 2a):**
- **Original Price:** $499.99
- **Discount:** 25%
- Discounted amount = $499.99 * 0.25
- Discounted amount = $124.9975
- **Discounted Price:** $499.99 - $124.9975 = $374.9925
- **Sales Tax:** 8%
- Tax amount = $374.9925 * 0.08
- Tax amount = $29.9994
- **Total Price after Tax:** $374.9925 + $29.9994 = $404.9919
2. **Calculating the Total Cost and Monthly Payments (Question 2b):**
- **Principal Amount (P):** $404.99
- **Annual Interest Rate (r):** 6% or 0.06
- **Monthly Interest Rate (i):** 0.06 / 12 months = 0.005
- **Number of Payments (n):** 18 months
- **Monthly Payment Calculation Using the Formula for an Amortizing Loan:**
\[ M = P \times \frac{i(1+i)^n}{(1+i)^n-1} \]
\[ M = 404.99 \times \frac{0.005(1+0.005)^{18}}{(1+0.005)^{18}-1} \]
- **Total Cost Calculation:**
- Total cost = Monthly payment * Number of payments
- Note: Students can use a financial calculator or appropriate software to compute the values accurately.
These calculations illustrate how discounts](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F1d58e7f4-b5f6-45a7-a98b-a666a4b40f88%2F0d66a7f5-fbac-4295-9c37-278cf499e0cb%2Ft6ihsq1_processed.png&w=3840&q=75)
Transcribed Image Text:### Question 2a:
You decide to purchase a new touchscreen Chromebook. The price is listed at $499.99, but the salesperson tells you that everything in the store is 25% off today. What is the total price that you pay for the Chromebook (including 8% tax)?
### Question 2b:
You decide to take advantage of the store’s payment plan. The payment plan’s terms are as follows: 18 equal monthly payments, 6% interest, compounded monthly.
a) What is the total cost that you will end up paying for the Chromebook?
b) What will your monthly payment be?
### Explanation:
1. **Calculating Discounted Price and Total Tax (Question 2a):**
- **Original Price:** $499.99
- **Discount:** 25%
- Discounted amount = $499.99 * 0.25
- Discounted amount = $124.9975
- **Discounted Price:** $499.99 - $124.9975 = $374.9925
- **Sales Tax:** 8%
- Tax amount = $374.9925 * 0.08
- Tax amount = $29.9994
- **Total Price after Tax:** $374.9925 + $29.9994 = $404.9919
2. **Calculating the Total Cost and Monthly Payments (Question 2b):**
- **Principal Amount (P):** $404.99
- **Annual Interest Rate (r):** 6% or 0.06
- **Monthly Interest Rate (i):** 0.06 / 12 months = 0.005
- **Number of Payments (n):** 18 months
- **Monthly Payment Calculation Using the Formula for an Amortizing Loan:**
\[ M = P \times \frac{i(1+i)^n}{(1+i)^n-1} \]
\[ M = 404.99 \times \frac{0.005(1+0.005)^{18}}{(1+0.005)^{18}-1} \]
- **Total Cost Calculation:**
- Total cost = Monthly payment * Number of payments
- Note: Students can use a financial calculator or appropriate software to compute the values accurately.
These calculations illustrate how discounts
Transcribed Image Text:**Credit Card and Purchases Decision Making - Educational Exercise**
1. **Comparing Credit Card Costs:**
You are trying to decide between 2 credit cards. Credit card A has no annual fee and an annual interest rate of 22.99%. Credit card B has an annual fee of $135 and an annual interest rate of 18.99%.
What is the annual cost on a $2300.00 purchase?
- **Card A:**
$
- **Card B:**
$
**Which card would you choose? Explain.**
2. **Price Calculation for a New Purchase:**
You decide to purchase a new touchscreen Chromebook. The price is listed at $499.99 but the salesperson tells you that everything in the store is 25% off today. What is the total price that you pay for the Chromebook (including 8% Tax)?
**Instructions for Calculating Credit Card Costs:**
For both credit cards, you need to calculate the cost for an annual purchase amount of $2300.00, considering both the annual interest rate and any annual fees that may apply.
- Calculate the interest cost for each card by multiplying the purchase amount by the annual interest rate.
- For Credit Card B, remember to add the annual fee to the interest cost to get the total annual cost.
**Steps for Discount and Tax Calculation:**
To determine the final price of the Chromebook:
1. Calculate the discount amount by applying the 25% discount to the listed price of $499.99.
2. Subtract the discount from the listed price to get the discounted price.
3. Calculate the tax on the discounted price by applying the 8% tax rate.
4. Add the tax to the discounted price to get the total price.
**Example Calculation:**
- Original Price of Chromebook: $499.99
- Discount (25%): $499.99 * 0.25
- Discounted Price: Original Price - Discount
- Tax on Discounted Price (8%): Discounted Price * 0.08
- Total Price: Discounted Price + Tax
By following these instructions, you can determine which credit card is more cost-effective for your purchase and the total cost of the Chromebook after applying the discount and tax.
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