Future Business Leaders of America (FBLA) Business Calculations Practice Test

You purchase a desk and chair for $100 and will make four equal monthly payments with an additional 5% each month on the unpaid balance. What is the total of all payments?

1. $112.83

2. $107.50

3. $112.50

4. $105.00

The correct answer is: $112.50

To determine the total of all payments when purchasing a desk and chair for $100 with four equal monthly installments and an additional 5% interest applied each month on the unpaid balance, it's important to understand how the payments and interest work together. Initially, the total purchase price is $100. Since you're making four equal payments, you'll first need to calculate what happens to the balance after each payment, considering the interest that accrues. The total payment process can be broken down month by month: 1. **First Month**: The starting balance is $100. At 5% interest, the interest for the first month is $5 ($100 * 0.05). The total due at the end of the first month becomes $105. After making the first payment, which is one-fourth of the balance before interest (approximately $26.25), the remaining balance at the end of the month will be around $78.75. 2. **Second Month**: The remaining balance of $78.75 incurs another 5% interest, adding about $3.94 for the second month. The new total due will be approximately $82.69. After making the second payment, the remaining balance will be around $56.44