Your original purchase price was $950.00 plus 5% sales tax. You enter into an agreement where the interest (12.5% APR) is waived for the first 12 months provided you make the required monthly payments; otherwise the interest is accrued from the date of purchase. You missed the first payment due date. The late fee is $35.00. How much is the interest?

Question

(1 point)
Responses

$118.75
$118.75

$10.39
$10.39

$9.90
$9.90

$124.69

Answer 1

To find the interest due after missing the first payment if interest is accrued from the date of purchase, we start with the original purchase price and calculate the total cost with sales tax, followed by finding the interest over the first month.

1. Calculate Total Purchase Price with Sales Tax:

   • Purchase Price = $950.00
   • Sales Tax (5%) = $950.00 * 0.05 = $47.50
   • Total Purchase Price = $950.00 + $47.50 = $997.50

2. Calculate Monthly Interest Rate:

   • Annual Percentage Rate (APR) = 12.5%
   • Monthly Interest Rate = 12.5% / 12 = 1.04167% (as a decimal, that’s 0.0104167)

3. Calculate First Month's Interest:

   • Interest for the first month = Total Purchase Price * Monthly Interest Rate
   • Interest = $997.50 * 0.0104167 ≈ $10.39

Since you missed the first payment, the interest accrued for that month is applicable.

The answer is $10.39.