Question

Peter pays a $1200 deposit on his holiday and then $185 per month for a year. The cash price of the holiday is $2700.

a. How much did Peter pay for his holiday?

b. Calculate the interest paid.

c. Calculate the balance owing after the deposit was paid.

d. Calculate, as a percentage correct to one decimal place, the flat interest rate charged p.a.

Answer 1

(a) Upfront Payment = $ 1200, Monthly Payments = $ 185 and Holiday Cash Price = $ 2700, Monthly Payment Tenure = 12 months

Total Payment Made for the Holiday = 12 x 185 + 1200 = $ 3420

(b) Interest Paid = Total Payment - Cash Price = 3420 - 2700 = $ 720

(c) Balance post upfront payment = 2700 - 1200 = $ 1500

(d) Let the monthly interest rate be r %

Therefore, 1500 = 185 x (1/r) x [1-{1/(1+r)^(12)}]

Using EXCEL's Goal Seek Function/ hit and trial method/ a financial calculator to solve the above equation, we get:

r = 0.066153 or 6.6153 %

Annual Rate = 6.6153 x 79.3836 %