A discounts electronic store advertises the foll. arrangement : "We dont offer you confusing interest rates. We'll just divide your total cost by 10 & you can pay us that amount each month for a year ". The first payment is due on the date of sale & the remaining 11 payments at monthly intervals thereafter. Calculate the effective annual interest rate the store's consumer are paying on there loans???? pls solve
Let C be the monthly payment. The PV of the item is 10C. The PV of the payments is the total annual sum, 12C, multiplied by an annuity-due, paid 12-thly, for 1 year. So you have to solve the equation: 10C = 12C x :a(12)1¬ where :a(12)1¬ is an annuity-due, paid 12-thly, for 1 time unit. Solve the equation for i. I'm at work so I can't solve it now. But that should get you started.
