Paul is in the process of purchasing a new sound system for his car. The cash price is $1500, or he can sign a contract to “buy now and pay later.” During the first year, the loan charges interest at 12.4% compounded monthly. The terms of the contract state that he would start making payments at the end of the month that is 12 months from now, paying $114 per month for 18 months to fulfill the contract.
(a) What monthly compounded nominal rate of interest would he be paying during the time he would be making payments?
(b) How much extra would Paul be paying to “buy now and pay later?”