An article can be bought for cash at $20,000.00. A customer bought it on hire purchase by paying a deposit of 20%. An interest of 10% was charged on the remaining balance and he was required to pay the balance in 15 monthly installments.
1.What is the interest charged?
2.The amount he paid for each monthly installment?
3.The amount he paid for the article at hire purchase?
0.2 * 20,000 = $4,000 deposit
$16,000 * 0.1 = 1,600 interest
(16,000 + 1,600) / 15 = $_______ monthly installment
To find the answers to these questions, we need to step through the calculations. Let's break it down:
1. Interest Charged:
The first step is to calculate the remaining balance after the customer pays the 20% deposit. So, the remaining balance can be calculated as:
Remaining balance = Price of the article - Deposit
= $20,000 - (20% of $20,000)
= $20,000 - (0.2 * $20,000)
= $20,000 - $4,000
= $16,000
Next, we need to calculate the interest charged on this remaining balance. The interest rate is 10%, so the interest charged can be calculated as:
Interest charged = (Interest rate * Remaining balance) / 100
= (10 * $16,000) / 100
= $1,600
Therefore, the interest charged on the purchase is $1,600.
2. Monthly Installment:
Now, let's calculate the amount paid for each monthly installment. The total amount that needs to be paid is the remaining balance plus the interest charged, divided by the number of installments.
Amount paid per monthly installment = (Remaining balance + Interest charged) / Number of installments
= ($16,000 + $1,600) / 15
= $17,600 / 15
= $1,173.33 (rounded to the nearest cent)
Therefore, the customer paid approximately $1,173.33 for each monthly installment.
3. Total Amount Paid:
Finally, let's calculate the total amount paid for the article at hire purchase. This includes the deposit, the interest charged, and the total amount paid for the installments.
Total amount paid = Deposit + Interest charged + (Amount paid per monthly installment * Number of installments)
= 20% of $20,000 + $1,600 + ($1,173.33 * 15)
= $4,000 + $1,600 + $17,599.95
= $23,199.95
Therefore, the customer paid a total of $23,199.95 for the article at hire purchase.