Stereo Inc. sells a stereo system for $400 down and monthly payments of $60 for the next 3 years. If the interest rate is 4.5% per year, find:

a) The cost of the stereo.

To find the cost of the stereo, we need to calculate the total amount paid over the 3 years including the down payment and monthly payments.

First, let's calculate the total amount paid in monthly payments over 3 years.
The monthly payment is $60 and the number of months in 3 years is 3 x 12 = 36 months.
Therefore, the total amount paid in monthly payments is 60 x 36 = $2160.

Next, let's calculate the total amount paid including the down payment.
The down payment is $400.
So, the total amount paid including the down payment is $400 + $2160 = $2560.

Lastly, let's calculate the interest paid on the installment.
The interest rate is 4.5% per year, which means it is divided by 100 to convert it to a decimal: 4.5/100 = 0.045.
To find the interest paid over 3 years, we multiply the total amount paid including the down payment by the interest rate: $2560 x 0.045 = $115.20.

Therefore, the cost of the stereo is the total amount paid including the down payment plus the interest, which is $2560 + $115.20 = $2675.20.

PV of the 36 payments

= 60( 1 - (1 + .045/12)^-36)/(.045/12) + 400
= ....