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Bart Simpson always wanted to buy a digital camera. Homer and Marge go shopping at Sprawl-Mart for the newest digital camera. Sprawl-Mart electronics department sells the new View-Shot 7.2 Mega Pixel digital camera for $800 and finances the full purchase price for 24 monthly payments at 28.5% per year compounded monthly. However, knowing that a 0% financing option will attract more customers (especially Homer), Sprawl-Mart plans to run a zero-interest financing sale during which they will finance the digital camera over 24 equal monthly payments at zero-percent interest.

a) How much would Sprawl-Mart need to charge for the digital-camera during the zero-interest sale in order to earn the usual combined return on the sale and the financing?

b) What is Homer's monthly payment on a zero-interest loan that Sprawl-Mart must charge during the 0% financing sale?

c) How much does Sprawl-Mart need to raise the price of the digital camera during the zero-percent interest sale?

 

Basic Finance, Finance

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