Answer to Question #153560 in Financial Math for kris

Question

A washing machine selling for RM800 cash was purchased through an instalment plan in which

10% down payment was made. The buyer made 20 weekly payments of RM40 each to settle

the balance. Calculate

(a) the instalment price

(b) the total interest charged

(c) the simple interest rate charged

(d) the effective rate charged.

Answer 1

Answers:

a)

Computation of instalment price:-

Selling price = RM 800

Down payment = 10%

Instalment amount = RM 40

No. of instalment = 20

Instalment price=Down payment+Total instalments

=RM 800×10%+RM40×20

=RM 80+RM 800

=RM 880

The instalment price is RM 880.

b)

Computation of total interest:-

Total interest =Instalment price−Selling price

=RM 880−RM 800

=RM 80

The total interest is RM 80.

c)

Computation of simple interest:-

Simple interest charged =Simple interest\Selling price

=RM 80\RM 800

=0.1 or 10%

The simple interest is 10%.

d)

Computation of effective rate:-

The formula is;

r= (1+(i\n))ⁿ-1

where;

r is the effective rate

i is the interest rate

n is the compounded periods per annum

4 weeks = 1 month

20 weeks=?

20\4=5

Therefore, the payments were made in 5 months.

r= (1+(0.01\5))⁵-1

r=(1.001923)⁵-1

r=1.105060-1

r=0.105060 or 10.506%

The effective rate is 10.506%.