Question

Rick is buying a small sailboat for $3,000 with a down payment of $1,000. The bank approved a simple interest flat rate loan for 2 years at 6% APR. How much are the monthly loan payments? (round to the nearest cent)
a.$83.33
b.$89.67
c.$93.33
d.$96.67

Answer 1

Option C

Monthly loan payment is $ 93.33

Solution:

From given question,

Cost of sailboat = $ 3000

Down payment = $ 1000

Hence net principal is given as:

net principal = p = $ 3000 - $ 1000 = $ 2000

p = $ 2000

The bank approved a simple interest flat rate loan for 2 years at 6% APR

Hence number of years = 2 years

Rate of interest = 6 %

Let us first calculate the simple interest

The formula for simple interest is given as:

$\text{ simple interest } = \frac{ p \times n \times r}{100}$

Substituting the given values,

$\text{ simple interest } = \frac{ 2000 \times 2 \times 6}{100}\\\\\text{ simple interest } = 20 \times 2 \times 6 = 240$

Thus simple interest = $ 240

Total amount payable = principal + simple interest

Total amount payable = $ 2000 + $ 240

Total amount payable = $ 2240

How much are the monthly loan payments?

Here number of years = 2 years

To calculate the monthly payment divide the total amount payable by 24 (since 2 year = 24 months )

$\text{ Monthly loan payment } = \text{ Total amount payable } \div 24$

$\text{ Monthly loan payment } = \frac{2240}{24} = 93.33$

Thus monthly loan payment is $ 93.33 Option C is correct