Answer all the Questions.
$\therefore$ Show all of your working.
* State units for your answers where necessary.
C1. Cash Price is K 4200 , initial deposit is K 700 , interest is $10 \%$ in a hire purchase. Calculate the
(a)
$\begin{aligned}<
\text { balance outstanding } & =\text { cashprice }- \text { Initial price } \\
& =K 4206-K 700 \\
\text { Balance } & =K 3500 \\
\text { outstanding } &<\
\end{aligned}$
(1 mark)
Answer: $\qquad$ K3500
(1 mark)
(b) interest charged.
Answer (2)
The balance outstanding is K 3500.
Calculate the interest charged by multiplying the balance outstanding by the interest rate (10% or 0.10).
Interest charged = K 3500 * 0.10 = K 350.
The interest charged is K 350 .
Explanation
Understanding the Problem We are given the cash price of an item, the initial deposit paid, and the interest rate for a hire purchase. We need to calculate the interest charged. First, we already have the balance outstanding from part (a), which is K 3500.
Calculating the Interest Charged To find the interest charged, we multiply the balance outstanding by the interest rate. The interest rate is given as 10%, which can be written as 0.10. So, we calculate the interest charged as follows: I n t eres t = B a l an ce O u t s t an d in g × I n t eres t R a t e I n t eres t = K 3500 × 0.10 I n t eres t = K 350
Final Answer Therefore, the interest charged is K 350.
Examples
Hire purchase agreements are commonly used when buying cars or furniture. Understanding how interest is calculated on these agreements helps consumers to budget effectively and compare different financing options. For example, if you are buying a car and have two options: one with a lower initial deposit but a higher interest rate, and another with a higher initial deposit but a lower interest rate, calculating the total interest paid over the term of the agreement can help you make an informed decision. This ensures you choose the option that is most financially beneficial for you.
The balance outstanding from the hire purchase is K 3500, derived from subtracting the initial deposit from the cash price. The interest charged on this balance at a 10% interest rate is K 350. Hence, the total interest charged is K 350.
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