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 12% (add-on rate). If the refrigerator at Sears costs $1,578 plus 5% sales tax, and Karen and Wayne plan to pay for the refrigerator for 3 years, what is the monthly payment?

Question

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 12% (add-on rate). If the refrigerator at Sears costs $1,578 plus 5% sales tax, and Karen and Wayne plan to pay for the refrigerator for 3 years, what is the monthly payment?

Answer 1

If I were Sears I would sue the publisher of this textbook for associating their name with such a fraudulent practice .

Anyway, according to this criminal plan ....
cost after sales tax = 1656.9
"add-on interest" = 1656.90(.12)(3) = 596.484
amount to be "financed" = 2253.384
monthly payment = 2253.384/36 = $62.594

Actual rate of interest: (not part of the question)
1656.90 = 62.564( 1 - (1+x)^-36)/x , where x is the monthly rate

Wolfram found x to be .0176 for an annual rate of 21.12 %

http://www.wolframalpha.com/input/?i=solve+1656.90+%3D+62.564%28+1+-+%281%2Bx%29%5E-36%29%2Fx

Answer 2

To calculate the monthly payment for an installment loan, you'll need to use the formula:

Monthly payment = Total loan amount / Number of months

Let's break down the information provided to solve this problem:

1. The cost of the refrigerator is $1,578 plus 5% sales tax.
Sales tax = 5% of $1,578 = $1,578 * 0.05 = $78.90
Total cost of the refrigerator = $1,578 + $78.90 = $1,656.90

2. The interest rate for the installment loan is 12% (add-on rate).
This means that the interest is calculated based on the original loan amount and added to the total amount borrowed upfront.

3. Karen and Wayne plan to pay for the refrigerator over 3 years, which is equal to 36 months.

Now, let's calculate the monthly payment:

Loan amount = Total cost of the refrigerator
Interest = Loan amount * Interest rate
Total loan amount = Loan amount + Interest
Monthly payment = Total loan amount / Number of months

Loan amount = $1,656.90
Interest = $1,656.90 * 0.12 = $198.83
Total loan amount = $1,656.90 + $198.83 = $1,855.73
Number of months = 36

Monthly payment = $1,855.73 / 36
Monthly payment ≈ $51.55

Therefore, the monthly payment for Karen and Wayne's installment loan is approximately $51.55.