Cloey has just purchased new bedroom furniture from Haverty’s for a total of $10,000. She paid 20% down and, through a special promotional, she can pay off the $8000 in ten $800, no-interest payments over the next 10 months. The smaller print at the bottom of the contract states that if any of the payments is not paid in full (meaning $800) or late by one or more days, the remaining unpaid balance will revert to an interest-based loan at the APR rate of 36% per year, compounded monthly, to be paid out completely in a period of 5 months starting 1 month after any infraction of the agreement. Cloey made the first three payments on time and in the full amount; however, she could only pay $600 on time when the fourth payment was due. (a) Calculate the equal monthly payments that she must now pay, again in the full amount and on time to avoid further penalties stated in additional “fine print” of the agreement. (b) How does the total amount she paid for the furniture over the 10-month period including the APR-penalty interest compare with the original cost of $10,000? Assume Cloey makes all five interest-bearing payments in full and on time.

ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Cloey has just purchased new bedroom furniture
from Haverty’s for a total of $10,000. She paid
20% down and, through a special promotional,
she can pay off the $8000 in ten $800, no-interest
payments over the next 10 months. The smaller
print at the bottom of the contract states that if
any of the payments is not paid in full (meaning
$800) or late by one or more days, the remaining
unpaid balance will revert to an interest-based
loan at the APR rate of 36% per year, compounded
monthly, to be paid out completely in a period of
5 months starting 1 month after any infraction of
the agreement. Cloey made the first three payments
on time and in the full amount; however,
she could only pay $600 on time when the fourth
payment was due.
(a) Calculate the equal monthly payments that
she must now pay, again in the full amount
and on time to avoid further penalties stated
in additional “fine print” of the agreement.
(b) How does the total amount she paid for the furniture
over the 10-month period including the
APR-penalty interest compare with the original
cost of $10,000? Assume Cloey makes all five
interest-bearing payments in full and on time.

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