## Related questions with answers

Question

John buys a stereo system for 640 dollars. He agrees to pay 32 dollars a month for 2 years. Assuming that interest is compounded monthly, what interest rate is he paying?

Solution

VerifiedAnswered 2 years ago

Answered 2 years ago

Step 1

1 of 5Recall:
The **present value** $A_{p}$ of an annuity (the amount that must be invested now)
where the annuity consists of

- $n$ periodical (equal) payments
- each payment of $R$ dollars
- with interest rate $i$ per time period

is

$A_{p}=R\frac{1-(1+i)^{-n}}{i}$

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