SOLUTION: 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.

Question 1204235: 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 15% (add-on rate). If the refrigerator at Sears costs $1,500 plus 5% sales tax, and Karen and Wayne plan to pay for the refrigerator for 2 years, what is the monthly payment?

$81.25

$93.84

$76.78

$72.34

$85.31
Answer by math_tutor2020(3816) (Show Source): You can put this solution on YOUR website!

Answer: $85.31

Explanation

The fridge starts off at $1500
But then increases to 1500*1.05 = $1575 when adding on the sales tax.

P = loan amount = 1575
r = 0.15 = add on rate
t = 2 = number of years
A = total amount to pay back
A = P*(1+r*t)
A = 1575*(1+0.15*2)
A = 2047.50
Karen and Wayne must pay back $2047.50 in total.

Spread that total over 24 equal payments.
2047.50/24 = 85.3125 = $85.31 is the monthly payment.

Further Reading
https://www.finder.com/add-on-interest
and
https://www.investopedia.com/terms/a/add-on_interest.asp

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