Calculating Monthly Payment for Refrigerator Purchase

Explanation:

Understanding the Situation

Karen and Wayne are in need of a new refrigerator as their current one has broken down. However, they have depleted their savings account and need to borrow money for this purchase.

Loan Terms at Sears

Sears has offered them an installment loan at an add-on rate of 16%. The refrigerator they are interested in costs $1,540 plus a 5% sales tax.

Calculating Total Amount Borrowed

To determine the total amount borrowed for the refrigerator purchase, we need to add the cost of the refrigerator and the sales tax:

Cost of refrigerator: $1,540

5% sales tax: $1,540 x 0.05 = $77

Total amount borrowed: $1,540 + $77 = $1,617

Calculating Total Amount to be Paid

With the 16% add-on rate for the loan, we need to calculate the interest on the total amount borrowed:

16% of $1,617 = $258.72

Total amount to be paid: $1,617 + $258.72 = $1,875.72

Monthly Payment Calculation

As Karen and Wayne plan to pay for the refrigerator over 3 years, we need to calculate the monthly payment amount:

Total amount to be paid over 3 years: $1,875.72

Number of months in 3 years: 36 months

Monthly payment: $1,875.72 / 36 = $52.10

Therefore, Karen and Wayne's monthly payment for the refrigerator purchase at Sears would be $53.14.