Investigating the impact of interest rates on savings and borrowing. Simple interest is calculated annually using the interest rate. Simple interest is always calculated using the original amount.
Part of Application of MathsFinancial skills
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The following example shows you how to calculate instalments:
The cash price of a bike is \(\pounds220\). The credit agreement price is \(\pounds300\).
If the deposit is \(10\%\) followed by ten equal monthly instalments, find the amount you pay each month.
First calculate the deposit:
\(Deposit = 10\%\,of\,\pounds220\)
\(= \pounds22\)
Now we need to calculate the total instalments:
Total instalments = credit agreement price - deposit
\(= 300 - 22\)
\(= \pounds278\)
Now we can work out what each instalment will be:
Individual instalments = total instalments 梅 number of instalments
\(= \frac{{278}}{{10}}\)
\(= \pounds27.80\)