8
practice examMultiple Choice

Practice Exam

Question 8 • Advanced Financial Algebra

Monthly payments may be calculated using this formula: monthly payment=P×(r⁢(1+r)^n)/((1+r)^n−1) An electronics retailer has told a potential buyer that the monthly payments for a new home theater system will be $⁢225.00 if the buyer finances the purchase price at 5% annual interest over 36 months. What is the approximate purchase price?

Answer
A
6 dollars comma 480
B
7 dollars comma 500
C
8 dollars comma 100
D
8 dollars comma 505

Explanation

Convert the 5% annual interest rate to a monthly rate: 0.05 ÷ 12 ≈ 0.004167. Rearrange the payment formula to find the purchase price: P = 225 × [1 − (1 + 0.004167)⁻³⁶] ÷ 0.004167 ≈ $7,490. The closest choice is $7,500, choice B.

AI-written and checked against the verified answer.

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