Your parents’ original purchase price was $1,550.00 plus 7.25% sales tax. They enter into an agreement where the interest (11.75% APR) is waived for the first 12 months provided they make the required monthly payments; otherwise the interest is accrued from the date of purchase. They miss the first payment due date. The late fee is $29.00. How much is the interest?

Question

(1 point)
Responses

$195.33
$195.33

$16.27
$16.27

$182.13
$182.13

$15.18

Answer 1

To calculate the interest on your parents’ purchase after missing the first payment, we first need to determine the total purchase price including sales tax and then calculate how much interest would accrue on that amount since they missed their first payment due date.

1. Calculate the sales tax:

   • Original purchase price = $1,550.00
   • Sales tax rate = 7.25%
   • Sales tax = $1,550.00 * 0.0725 = $112.375

2. Total purchase price including sales tax:

   • Total = Original price + Sales tax = $1,550.00 + $112.375 = $1,662.375

3. Determine the interest:

   • Since the interest is waived for the first 12 months only if the first payment is made on time, and since your parents missed the first payment, interest accrues from the date of purchase.
   • APR (annual percentage rate) = 11.75%
   • Monthly interest rate = 11.75% / 12 = 0.9783%

4. Calculate accrued interest for one month:

   • Monthly interest = Total * Monthly interest rate
   • Monthly interest = $1,662.375 * 0.009783 = $16.27 (approximately)

Thus, the amount accrued as interest for missing the payment would be $16.27.

The correct response is $16.27.