Question

Andrew wants buy a motorbike. The cash prize is R55000, he does not have enough money to pay the full amount and pay a deposit of 10% cash price He then takes a hire purchase aggremment on the balance and undertakes to pay in 68 equal me payments The interest charged for the hire purchase aggreement interest is 14% per annum ,simple interest.

Calculate the value of the deposit he made.
show all calculations
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Answer 1

Explanation:

To calculate the value of the deposit Andrew made, we'll start with the total cash price of the motorbike, apply the 10% deposit, and then determine the balance to be financed through the hire purchase agreement.

Total Cash Price of the Motorbike (R55000)

Deposit:

Andrew makes a 10% deposit on the cash price.

Deposit = 0.10 * R55000

Deposit = R5500

Now, we need to calculate the balance to be financed through the hire purchase agreement:

Balance to be Financed:

Balance = Total Cash Price - Deposit

Balance = R55000 - R5500

Balance = R49500

Now that we know the balance to be financed is R49500, we can calculate the interest charged on this balance over 68 equal monthly payments at a 14% per annum simple interest rate.

Calculate Monthly Interest:

Annual interest rate = 14%

Monthly interest rate = (14% / 12 months)

Monthly interest rate = (0.14 / 12)

Monthly interest rate = 0.0116667 (rounded to 7 decimal places)

Calculate the Monthly Payment Amount:

We'll use the formula for calculating the monthly payment amount on a simple interest loan:

Monthly Payment = (Principal * Monthly Interest Rate) / (1 - (1 + Monthly Interest Rate)^(-Number of Payments))

Monthly Payment = (R49500 * 0.0116667) / (1 - (1 + 0.0116667)^(-68))

Calculating this value will give you the monthly payment amount. If you need the exact value, you can use a calculator or spreadsheet software to perform the calculations.

Once you have the monthly payment amount, Andrew will make 68 such payments over the term of the hire purchase agreement.