Really need help with this: You purchase a computer for $875.00 plus 5% sales tax. You decide to finance it through the store's 0% program for 12 months. The terms state that you must pay $100.00/month and that if you miss a payment, you will be assessed a late fee of $39.00 plus the interest accrued to that point at a 14.25% APR. If you miss a payment in the eighth month, how much interest will you be charged?

Question

Really need help with this: You purchase a computer for $875.00 plus 5% sales tax. You decide to finance it through the store's 0% program for 12 months. The terms state that you must pay $100.00/month and that if you miss a payment, you will be assessed a late fee of $39.00 plus the interest accrued to that point at a 14.25% APR. If you miss a payment in the eighth month, how much interest will you be charged? 
(Please explain how you get the answer, I can't find anyone who can get it.) 
$83.13 
$16.63 
$87.28 
$20.78

Reiny · Answer

total cost = 1.05(875) = 918.75

so you made 7 payments of 100, leaving you with a balance of 218.75 when the 8th payment is due
Penalty is 39 + .1425(218.75) = 70.17

Your wording does not make it clear, on what amount the 14.25% interest is charged. I assumed it would logically be on the outstanding balance.

Sandy · Answer

That is the way it was written to me and I think that is why it is so confusing since I can't get any of the listed answers. The lesson doesn't give any instructions either. I think the 14.25% is charged on the $700 because he/she forfeited the 0%. I also got 70.17 but that is not one of the answers. I am stuck.