Richard borrowed $1,250 for two years at 14% a year under an
add-on plan. He repaid the loan, including interest, in 24 equal
payments. How much was each payment?
a. $66.67
b. $78.13
c. $15.63
d. $12.66
First, we need to calculate the total amount of interest paid over the two-year period:
Total interest = Principal x Rate x Time
Total interest = $1,250 x 0.14 x 2
Total interest = $350
So the total amount Richard needs to repay is:
Total amount = Principal + Total interest
Total amount = $1,250 + $350
Total amount = $1,600
Now we can calculate the equal payments using the add-on plan formula:
Equal payment = Total amount / Number of payments
Equal payment = $1,600 / 24
Equal payment = $66.67
Therefore, the answer is (a) $66.67.
To find the amount of each payment, we can use the formula for the add-on interest plan:
Total amount to be repaid = Principal + Interest
The principal borrowed is $1,250, and the interest rate is 14% per year for a period of 2 years.
To calculate the interest, we use the formula:
Interest = Principal * Rate * Time
Interest = $1,250 * 0.14 * 2 = $350
So, the total amount to be repaid is:
Total amount to be repaid = $1,250 + $350 = $1,600
Since the loan is repaid in 24 equal payments, we divide the total amount by 24 to find the amount of each payment:
Amount of each payment = $1,600 / 24
Amount of each payment ≈ $66.67
Therefore, the answer is option a. $66.67
To find out how much each payment is, we need to use the formula for a loan under an add-on plan. The formula is:
Total repayment = Principal + Total interest
The principal is the amount borrowed, which is $1,250. The interest is calculated using the add-on interest rate and the number of years the loan is taken for.
Total interest = Principal * Interest rate * Number of years
In this case, the interest rate is 14% and the number of years is 2, so:
Total interest = $1,250 * 0.14 * 2 = $350
Now, we can calculate the total repayment:
Total repayment = $1,250 + $350 = $1,600
Since the loan is repaid in 24 equal payments, we can divide the total repayment by the number of payments to find out how much each payment is:
Each payment = Total repayment / Number of payments
Each payment = $1,600 / 24 = $66.67
Therefore, the answer is option a. $66.67.