Karen and Wayne need to buy a refrigerator because theirs ju

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 10% (add-on rate). If the refrigerator at Sears costs $1,550 plus 5% sales tax, and Karen and Wayne plan to pay for the refrigerator for 5 years, what is the monthly payment?

Solution

The monthly payment = $40.69

Working

Total Amount of borrowing = Cost of refrigerator + Sales Tax

= $1,550 + [ 1,550 x 5% ]

= $1,550 + $77.50

= $1,627.50

Total Interest on loan for the 5 Years = $1,627.50 x 10% x 5 = $813.75

Therefore, the monthly payment = [ Borrowing + Interest ] / 60 Months

= [ $1,627.50 + 813.75 ] / 60 Months

= $2,441.25 / 60 Months

= $40.69 per month