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QUESTION

A store offers two payment plans. Under the installment plan, you pay 12.5% down and 12.5% of the purchase price in each of the next 7 years.

A store offers two payment plans. Under the installment plan, you pay 12.5% down and 12.5% of the purchase price in each of the next 7 years. If you pay the entire bill immediately, you can take a 15% discount from the purchase price.

a) Calculate the present value of the payments, if you can borrow or lend funds at a 4% interest rate. Assume the product sells for $100.

I came up with 100/1+(.04/7) = 99.43

b) Calculate the payment net of discount.

I came up with $86.46

What is wrong with my calculation?

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