Karen and Wayne need to buy a refrigerator because theirs just broke. Unfortunately, their savings account is depleted, and they will need to borrow money in order to buy a new one. Sears offers them an installment loan at 15% (add-on rate). If the refrigerator at Sears costs $1,500 plus 5% sales tax, and Karen and Wayne plan to pay for the refrigerator for 2 years, what is the monthly payment?
A) $72.34
B) $76.78
C) $85.31
D) $93.84
E) $81.25

Question

Karen and Wayne need to buy a refrigerator because theirs just broke. Unfortunately, their savings account is depleted, and they will need to borrow money in order to buy a new one. Sears offers them an installment loan at 15% (add-on rate). If the refrigerator at Sears costs $1,500 plus 5% sales tax, and Karen and Wayne plan to pay for the refrigerator for 2 years, what is the monthly payment? ​
A) $72.34
B) $76.78
C) $85.31
D) $93.84
E) $81.25

Quizplus · Accepted Answer

First, let's calculate the total cost of the refrigerator including sales tax:

$1,500 + ($1,500 * 0.05) = $1,575

Next, let's calculate the total amount of interest that Karen and Wayne will pay over the course of the loan:

$1,575 * 0.15 * 2 = $472.50

So the total amount that Karen and Wayne will need to repay over the course of the loan (including the interest) is:

$1,575 + $472.50 = $2,047.50

Finally, we can use the formula for an add-on rate loan to calculate the monthly payment:

Monthly payment = Total amount repaid / Number of payments

Number of payments = 2 years * 12 months/year = 24

Monthly payment = $2,047.50 / 24 = $85.31

Therefore, the answer is C: $85.31.

Karen and Wayne Need to Buy a Refrigerator Because Theirs