Question

3) Angeline bought an RM8,000 hi-fi set through an instalment plan. She has to pay RM4,000 down payment and 10 monthly payments of RM450 each. By using the Constant Ratio formula, find: a) The total interest charged. (2m) b) The instalment price. (2m) c) The simple interest rate charged. (2m) d) The approximate effective rate. (2m) 4) A loan of RM5,000 for 20 months at 10% per annum simple interest rate was settled by making 20 monthly payments. Find the outstanding principal just after the eighth payment by using the Rule of 78. (6m)

Answer 1

Answer:

Given information:

• Hi-fi set cost = RM 8,000
• Down payment = RM 4,000
• Remaining balance = RM 8,000 - RM 4,000 =RM 4,000
• Remaining balance paid by 10 monthly installments @ RM 450 each = RM 450*10 = RM 4,500

a)

Calculation of total interest charged:

Particulars	Amount	Amount
Total interest	=RM 4,500 - RM 4,000 =RM 500	RM 500

b)

Calculation of installment price:

Particulars	Amount	Amount
Installment price	=RM 4,000 + RM 500 =RM 4,500	RM 4,500

c)

Calculation of simple interest rate:

Particulars	Amount	Amount
Simple interest rate	= RM 500/RM 4,000 =0.125*100 [convert into percent] = 12.5%	12.5%

d)

Calculation of Effective rate :

Particulars	Amount	Amount
Effective rate	= {(1+(r/12))^12}-1 = {(1+(12.5%/12)^12}-1 ={(1 + 0.0104)^12} - 1 = {(1.0104)^12} - 1 = 1.1324 - 1 = 0.1324 *100 [ convert into percent] = 13.24%	13.24%

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