Week #7 Interest, Interest, Installment Buying, Sequences and Series This week w

Question

Week #7 Interest, Interest, Installment Buying, Sequences and Series

This week we will be studying the mathematics of finance. Most people take out a loan for making big purchases like a home or a car. People who have a balance on their credit card are borrowing money. Some investigation is often required to find the “Best Deal”.

Please post your solution to the following problem:  

c)  Karen and Wayne need to buy a refrigerator because theirs just broke. Unfortunately, their savings account is depleted, and they will need to borrow money in order to buy a new one. Sears offers them an installment loan at 16 %( add-on rate). If the refrigerator at Sears costs $1,540 plus 5% sales tax, and Karen and Wayne plan to pay for the refrigerator for 3 years, what is the monthly payment? Please show your work. make sure the work is clearly understandable.

Explanation / Answer

ans)) Cost of the refrigerator at sears=1540$

Total cost=base price + sales tax=1540+ 0.05*1540=1540+77= 1617$

Loan installment rate=16% (add on)

Loan tenure=3 years

Interest for three years=[(Principal amount)*(duration of loans in years)*(interest rate)]

=(1617)*(3)*(0.16)=776.16$

Total Loan amount=Total cost of refrigerator + interest for three years

=1617+776.16$= 2393.16$

So, monthly installment/payment=Total Loan amount/No of months

=(2393.16)/36

Final answer= Monthly payment= 66.476$

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