Peg Gasperoni bought a $50,000 life insurance policy for $100 per year. Ryan Life Insurance Company sent her the following billing instructions along with a premium plan example:
"Your insurance premium notice will be mailed to you in a few days. You may pay the entire premium in full without a finance charge or you may pay the premium in installments after a down payment and the balance in monthly installments of $30. The finance charge will be added to the unpaid balance. The finance charge is based on an annual percentage rate of 15%."
If the total
policy premium is: |
And you put down: |
The balance subject to finance charge will be: |
The total number of monthly installments
($30 minimum)
will be: |
The monthly installment before adding the finance charge will be: |
The total finance charge for all installments
will be: |
And the total deferred payment price will be: |
| $100 |
$30.00 |
$ 70.00 |
3 |
$30.00 |
$1.75 |
$101.75 |
| $200 |
$50.00 |
$150.00 |
5 |
$30.00 |
$5.67 |
$205.67 |
| $300 |
$75.00 |
$225.00 |
8 |
$30.00 |
$12.84 |
$312.84 |
|
Peg feels that the finance charge of $1.75 is in error.
a. What is the actual finance charge for the first three months? (Round your answer to the nearest cent.)
b. Is she correct?