Chapter 13.II, Problem 8RE

### Contemporary Mathematics for Busin...

8th Edition
Robert Brechner + 1 other
ISBN: 9781305585447

Chapter
Section

### Contemporary Mathematics for Busin...

8th Edition
Robert Brechner + 1 other
ISBN: 9781305585447
Textbook Problem

# Calculate the amount financed, the finance charge, and the monthly payments for the following add-on interest loans.Purchase(Cash) Down Amount Add-on Number of Finance MonthlyPrice Payment Financed Interest Payments Charge Payment_______________________________________________________________________$788 10%$709.20 8% 12 $56.74$63.83________ ________ ________

To determine

To calculate: The amount financed, the finance charge and the monthly payment for the installment where purchase price is $788, down payment is 10%, add-on interest is 8% and number of payments is 12. Explanation Given Information: The amount of purchase price is$788, down payment is 10%, add-on interest is 8% and number of payments is 12.

Formula used:

Follow the steps to compute the regular monthly payment of an installment loan using add-on interest.

Step 1: The amount financed is computed by complement method as the percentage financed is 100% minus the down payment percent.

Amount financed=Purchase price(100%Down payment percent)

Step 2: Finance charge is computed by multiplying principle with rate and time with the amount financed as the principal.

I=P×R×T

Where, I is the finance charge, P is the amount financed, R is the rate of interest and T is the time.

Step 3: The total amount of installments payment is computed by adding amount financed and finance charge.

Total amount of installment payments=Amount financed+Finance charge

Step 4: The regular monthly payments is computed by dividing the total number of payments by total number of months of the loan.

Regular monthly payments=Total number of installment paymentsNumber of months of the loan

Calculation:

Consider that purchase price is $788, down payment is 10%, add-on interest is 8% and number of payments is 12. Compute amount financed by substituting purchase price equals to$788 and down payment equals to 10%,

Amount financed=Purchase price(100%Down payment percent)=$788×(100%10%)=$788×90%=\$709

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