The cash price of a car is $25000. A customer paid deposits $ 3750. He repaid the amount owing in 24 equal monthly installments. If he was charged simple interest at the rate of 40% p.a, how much was each installment.
25000 – 3750
= 21250
21250 × 0.4 × 24/12
=38250
Installment = 38250/24
= 1,593.75
Are you sure it was 40% interest rate? I believe that is illegal.
it was 4%
No. Rework the problem, making sure that you state the interest rate as 0.04
21250 + 21250 * 0.04 * 24/12
=22950
22950/24
= 956.25
Yes. The monthly installment is $956.25
To calculate the installment amount, we need to use the formula for calculating the total amount paid with simple interest:
Total Amount = Principal Amount + Interest
In this case, the Principal Amount is the remaining balance after the deposit, which is:
Principal Amount = Cash Price - Deposit Amount
Principal Amount = $25,000 - $3,750
Principal Amount = $21,250
Next, we calculate the Interest:
Interest = Principal Amount × Interest Rate × Time
Here, the Interest Rate is given as 40% per year, and the Time is 24 months.
Interest = $21,250 × 0.4 × (24/12)
Interest = $21,250 × 0.4 × 2
Interest = $17,000
Now, we can calculate the Total Amount:
Total Amount = Principal Amount + Interest
Total Amount = $21,250 + $17,000
Total Amount = $38,250
Finally, to find the installment amount, we divide the Total Amount by the number of installments:
Installment Amount = Total Amount / Number of Installments
Installment Amount = $38,250 / 24
Installment Amount = $1,593.75
So, each monthly installment amount is $1,593.75.