Jane bought an audio system and agreed to pay for the purchase by making five equal annualinstallments of $1,100 beginning four years from today. The interest rate is 12%. What wasthe cost of the audio system? (Hint: What is the present value of the cash payments?)

Jane bought an audio system and agreed to pay for the purchase by making five equal annualinstallments of $1,100 beginning four years from today. The interest rate is 12%. What wasthe cost of the audio system? (Hint: What is the present value of the cash payments?)

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Concept explainers

Cost of Credit

The cost of credit is an extra amount that the borrower has to pay besides the loan amount. These credit charges may vary from loan to loan. The cost of credit includes interest charges, maintenance charges, and arrangement charges. Some of the costs are mandatorily collected by the lender based on the loan amount and tenure of the loan. The cost of credit is also called finance charges of the credit.

Question

Jane bought an audio system and agreed to pay for the purchase by making five equal annual
installments of $1,100 beginning four years from today. The interest rate is 12%. What was
the cost of the audio system? (Hint: What is the present value of the cash payments?)

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