Question

Question 2 Load shedding is an endemic in South Africa, many businesses and households are compelled to consider alternative sources of energy. The advertisement below depicts a solar panel kits with different payment options. TABLE 1: Solar panel kit and payment options Payflex Cash Price R13 278 (Vat Incl.) Split payment into 4 x interest free payments. 2.1 Available on Pre-Order Initial payment is two fifths of the cash price. Credit agreement Deposit: 10% Instalment: A x 24 months Interest Rates: 15% per annum monthly compounded. (adapted from solardirect.com) 2.1.1 Define deposit within the given context. 2.1.2 If the Payflex option is chosen, calculate the initial instalment amount and subsequent payable amounts. 2.1.3 Which payment option best suits the traditional hire purchase arrangement? 2.1.4 If a deposit is paid as per credit agreement requirements. Calculate the value of A, the instalment amount. (2) (5)​

Answer 1

2.1.1 Deposit, in this context, refers to the initial amount of money paid upfront towards the purchase of the solar panel kit when using the credit agreement payment option.

2.1.2 If the Payflex option is chosen, the initial instalment amount would be R3,319.50 (which is two-fifths of the cash price, i.e. (2/5) x R13,278 = R5,311.20, divided into four equal interest-free payments). The subsequent payable amounts would also be R3,319.50 each, paid over three months.

2.1.3 The credit agreement payment option best suits the traditional hire purchase arrangement, as it involves paying a deposit and then paying off the balance in instalments over a period of time, with interest.

2.1.4 If a deposit of 10% is paid as per credit agreement requirements, the amount would be R1,327.80 (which is 10% of R13,278). The balance to be paid off in instalments would be R11,950.20 (which is the cash price of R13,278 minus the deposit of R1,327.80).

Using the formula for calculating the instalment amount on a loan with monthly compounded interest, we have:

A = (r x B) / [1 - (1+r)^(-n)]
where:
r = monthly interest rate = 15% / 12 = 0.0125
B = balance amount = R11,950.20
n = total number of instalments = 24

A = (0.0125 x 11,950.20) / [1 - (1+0.0125)^(-24)]
A = R596.55 (rounded to two decimal places)

Therefore, the instalment amount would be R596.55 per month for 24 months.