Candy purchases a new guitar costing $5,500. She put down 15% and finance the rest for 3 years through the store. The store will charge her 10% per year compounded quarterly.

Identify the type of problem.

Present Value with compound interest

Future V alue of an Annuity

Present V alue of an Annuity

Amortization

Sinking Fund

What are her quarterly payments?

a. $469.67

b. $502.35

c. $455.75

d. $406.60

e. $488.80

c. $455.75

Explanation:

The computation of the quarterly payments is shown below:

= Balance amount : PVIFA factor for 2.5% at 12 years

where,

Balance amount is

= $5,500 - $5,500 * 15%

= $5,500 - $825

= $4,675

And the PVIFA factor for 2.5% at 12 years is 10.2578

Refer to the PVIFA table

So, the quarterly payments is

= $4,675 : 10.2578

= $455.75

In the case of quarterly payments, the rate is one fourth and time period would be 4 times