Question

Ali buy a used guitar for 24000if ali pays 6000 he has to borrow the balance at 12% p. a. Simple interest over 3 years what are his monthly repayment

Answer 1

the guitar costs 24000.

ali pays 6000 down.

he owes 18000 at 12% per year simple interest for 3 years.

simple interest is calculated off the principal, unlike compound interest which is calculated off the remaining balance of the loan.


the simple interest formula is i = p * r * n

i is the interest
p is the principal
r is the interest rate per time period
n is the number of time periods.

in this problem, the principal is 18000 and the interest is 12% per year and the number of years is 3.

12% per year is the percent interest rate.
the interest rate is the percent / 100 = .12 per year.

the formula becomes:

i = 18000 * .12 * 3.

solve for i to get i = 6480.

the total that needs to be payed is the principal plus the interest.

that comes out to be 18000 + 6480 = 24480.

his monthly payment will be 24480 / (3 * 12) = 24480 / 36 = 680.

an alternate method would have been to translate everything to monthly time periods up front.

p = 18000
r = .12 / 12 = .01 per month.
n = 12 * 3 = 36 months.

the formula then becomes i = 18000 * .01 * 36 = 6480.

the payment is the same at (18000 + 6480) / 36 = 680 per month.