Question driving me nuts

[samuch]

But he is paying $32 per week, he is not paying $1095 outright?

the question is about interest though and the 1095$ doesnt contribute to the total amount of money being spent on interest (and you need to find how much has which is why you minus it) as this would be spent anyway if he bought it outright.... any clearer now :S ?

[kenhung123]

So your saying he paid 1095-100 initially and he is paying 117% interest for 2 years?

[samuch]

So your saying he paid 1095-100 initially and he is paying 117% interest for 2 years?

sort of but not exactly ummm think about it this way

$1095 is the cost of the stereo

1095/32 to find how long he is paying off the actual price of the stereo
= 34.22 weeks

so for 104weeks (2years) - 34.22 weeks = 69.78 weeks that he is purely paying interest

this interest therefore amounts to:

(the total) $32 x 104 + $100 = $3428... minus the price he would originally pay if he was to pay outright $1095 minus $100 because he doesnt pay interest on the deposit either = $2233 <that is how much money is spent on interest

[kenhung123]

This is how I interpreted the question:
The man has a choice of a) To pay $1095 and get the stereo or b) to pay $100 first then pay $32 per week for 2 years (104 weeks)

Now we want to find what is the interest rate if he chose plan b)

So we know r=100I/Pt

I=32*104+100-1095 Because plan b) includes interest while plan a) does not. So we see how much interest interest he is paying by subtracting plan a) from total amount paid in plan b)

t=2 years because it is specified in question

P=100 because it is the initial amount payed through plan b)

Now we can calculate r...

Principal is initial amount right? I really don't understand why you did 1095-100, how is that the initial payment?

[samuch]

yeah you have it... whats the problem then ? lol

the only adjustment i would make is

I=32x104-100-1095

because 100 is part of the initial cost (no interest being payed on that amount)

[kenhung123]

I don't understand the principal part lol...

[samuch]

i have no idea what principal means hahah give me a definition please

[kenhung123]

Principal is supposed to be "Initial amount" which mba defined as 1095-100

[samuch]

oh yep that makes sense sorry, so you only pay interest on $995

what part dont you get of this principal value ?

[kenhung123]

But his paying through weekly not through outright. 1095-100 refers to outright payment?

[kenhung123]

Look: Principal=amount owed. It is obvious the guy is paying money regularly (which charges interest) over paying for the item outright. So why the hell are we using the outright amount to calculate the amount owed when he doesn't owe anything related to the outright amount?! He is paying another way!

[samuch]

Look: Principal=amount owed. It is obvious the guy is paying money regularly (which charges interest) over paying for the item outright. So why the hell are we using the outright amount to calculate the amount owed when he doesn't owe anything related to the outright amount?! He is paying another way!

you have just confused me lol

[m@tty]

Yeah.. I have no idea what you mean....

[samuch]

Look: Principal=amount owed. It is obvious the guy is paying money regularly (which charges interest) over paying for the item outright. So why the hell are we using the outright amount to calculate the amount owed when he doesn't owe anything related to the outright amount?! He is paying another way!

that bold bit makes sense, the rest i think i may understand but just think... the outright amount is still related to this other way of paying, because we are just interested in the extra money he would be paying using this method... and to find this you subtract the outright amount from the total you calculate....