Question

Rihanna purchase a new dress for the Grammys that cost $4,829.she agrees to finance the entire purchase with add-on(simple interest) rate of 7.2% over 5 years.Find Rihanna's monthly payment on this financed purchase.

Answer 1

Answer

Given,

Cost of the dress (Principal) = $4,829

Simple interest (add-on) rate = 7.2% per annum or 0.6% per month

Tenure = 5 years or 60 months

            Equated monthly payment = [P * R * (1+R)^N] / {[(1+R)^N]-1}

Where,

P = Principal Loan Amount

R = Rate of Interest (on a monthly basis)

N = Tenure or the loan duration in months.        

Therefore,

Monthly payment = [4,829 * 0.006 * (1+0.006)⁶⁰] / {[(1+0.006)⁶⁰]-1}

                                 =[28.974 * (1.006)⁶⁰]/ {[(1.006)⁶⁰]-1}

                                 = (28.974 * 1.432) / (1.432 – 1)

                                 = 41.491 / 0.432

                                 = $96.044

Rihanna should pay $96.044 as monthly payment for 5 years.

Note – Intermediary and final answers are rounded off to 3 decimal places.