One of your customers is delinquent on his accounts payable balance. You’ve mutually agreed to a

One of your customers is delinquent on his accounts payable balance. You’ve mutually agreed to a repayment schedule of $560 per month. You will charge 0.96 percent per month interest on the overdue balance.

Required:

If the current balance is $14,780, how long will it take for the account to be paid off? (Enter rounded answer as directed, but do not use the rounded numbers in intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)

Number of months

rev: 04-30-2011

Explanation:

Here we need to find the length of an annuity. We know the interest rate, the PV, and the payments. Using the PVA equation:

PVA = C({1 – [1/(1 + r)t]} / r )

$14,780 = $560{ [1 – (1/1.0096)t ] / 0.0096}

Now we solve for t:

1/1.0096t = 1 – [($14,780)(0.0096) / ($560)]

1.0096t = 1 / 0.74663 = 1.33935

t = ln 1.33935 / ln 1.0096

t = 30.58 months

Calculator Solution:

Note: Intermediate answers are shown below as rounded, but the full answer was used to complete the calculation.

Enter

0.96%

$14,780

±$560

N

I/Y

PV

PMT

FV

Solve for

30.58