Hire Purchase

[Hodgeyhodgey]

So it seems to me that the only marks I'm dropping in business maths on practice exams are to do with hire purchase.

Say that the price of furniture is $2800 and a $400 deposit is made with monthly repayments of $50 over 5 years.

How do you calculate the flat rate of interest?
I get that the total amount paid is $3400 (400+12x50x5) and that the interest would be $600, but how do I figure out the flat rate?

By using I = Prt/100 (re-arranged to r = 100I/Pt), I get:

r = 100 x 600 / 2400 x 5
   = 5%

But according to the answers it should be 25%. How can this be calculated? Am I using the wrong formula or figures? Or is this 5% relating to 1 year and I simply just need to multiply it by the 5 years?

Please help


Note: This is from Heffernan 2001, Exam 1

[iroflmfao]

I got 5 % p.a as well.

And no it shouldn't be 25%.

Maybe solutions are wrong ?

I think they got confused with if its 5 % p.a you get 120 dollar of interest. 5 years = 600.
25% p.a you get 600 of interest. 5 years = 3000.

[Hodgeyhodgey]

That makes sense to me.

The worked solutions had:
2400 x 25/100 x 5 = $3000, so I'm guessing they messed up and they have calculated $3000 interest, not the amount that the person has paid (minus deposit).

But then the multiple choice options were (interest is closest to)
A - 4%
B - 8.33%
C - 14.62%
D - 17.65%
E - 25%

So it would have to be A, like I originally chose. If we're right, then I got 100%, not 1 mark wrong!

[tea.squaredd]

I tried it and I'm gonna agree with you guys