The Cost of Buying a Home Entertainment Center on Installment Plan
The cash price of a home entertainment center is $4500
It can be bought on the installment plan for $500 down and $137 a month for 36 months.
a. What is the installment price of the home entertainment center?
Part a: The installment price of the home entertainment center is $500 down plus $137 a month for 36 months, which equals $500 + ($137 x 36) = $500 + $4,932 = $5,432.
b. What is the finance charge?
Part b: The finance charge is the difference between the installment price and the cash price of the home entertainment center, which is $5,432 - $4,500 = $932.
Part a would include explaining how the installment price is calculated by adding the down payment to the monthly payments multiplied by the number of months in the installment plan. For part b, the finance charge is essentially the cost of borrowing the money to pay for the home entertainment center over the 36-month installment plan. It is calculated by subtracting the cash price from the installment price and represents the interest and fees charged by the seller or financing company.
What are the key components to consider when calculating the installment price and finance charge for buying a product on an installment plan? The key components to consider when calculating the installment price and finance charge for buying a product on an installment plan include the down payment, monthly payment amount, duration of the installment plan, and the cash price of the product. The installment price is calculated by adding the down payment to the total of monthly payments multiplied by the number of months in the installment plan. The finance charge is determined by subtracting the cash price from the installment price, representing the cost of borrowing the money to purchase the product over the installment period.