Final answer:
Arlo is considering a hire purchase for a refrigerator, involving various fees and an interest rate after the first year. The calculation of the monthly payment with interest is analogous to calculating house loan payments, requiring an understanding of loan repayment structure and interest calculation.
Step-by-step explanation:
Arlo is considering using hire purchase to buy a new refrigerator. With this financial arrangement, Arlo will encounter various costs over the repayment period of the loan.
The initial cost of the fridge is $978, and the delivery fee adds another $89. There is also a one-time set up fee for the loan amounting to $55, and a monthly service fee of $1.80.
For the first 12 months, the hire purchase is interest-free, but after this period, an annual interest rate of 22.3% is applied to the remaining balance.
Since Arlo plans to pay off the hire purchase in 4 years or 48 months, he will need to calculate the monthly payments considering the interest rate after the first year. This scenario requires understanding the hire purchase costs and calculating the monthly payment with compound interest.
It is similar to figuring out loan payments for a house loan, which also involves an initial loan amount, an interest rate, and a set repayment period. For example, if Joanna can afford to pay $12,000 per year, with a 4.2% annual interest rate over 30 years, the maximum loan amount and total amount paid can be calculated using financial formulas or a present value calculation.