Reference no: EM132653328

A store is offering a "no money down, pay no interest, and make no payments for 6 months" promotion on any purchases over $1000. You buy a big screen TV from this store for $2825, taxes included. The store explains that if you take advantage of the promotion, you will not have to pay for the TV today and that the $2825 will not be due until 6 months later. However, you will need to pay an "administration" fee of $70 up front (paid at the time you buy the TV). You decide to take advantage of the promotion and buy the TV on September 24, 2020. Thus the $2825 will be due on March 24, 2021.

Question (a) What rate of simple interest are you being charged for this "pay no interest" promotion?

Question (b) In order to make sure you have the $2825 in 6 months, you plan to make 6 monthly deposits of $450. These deposits will be made on the 24th of each of the next 6 months, with the first deposit made on the day you buy the TV (September 24). If your deposits earn simple interest at i%, what value of i do you need to earn? Comment on how likely it is you will be able to reach your goal of $2825 by March 24, 2021.

Question (c) Alternatively, you find another account that pays compound interest at i(12) = 6%. What size deposit, R, do you need to make every month for the next 6 months, if your first deposit is made today (there will be 6 deposits in total)? (for this question and the next question, do not worry about counting the number of days).

Question (d) Redo (c) assuming you could earn i(4) = 4.4%