Question

Tom takes out a loan for $1,000
at a simple interest rate of 10%
to be paid back in 12
monthly installments.

What is the amount of the monthly payments?

Answer 1

To determine the monthly installments for Tom's loan, we first need to calculate the total amount of interest due on the loan and then find the total repayment amount.

1. **Calculate the interest on the loan:**
- Principal (P) = $1,000
- Interest rate (r) = 10% per year = 0.10
- Time (t) = 1 year (since he pays it back in 12 months)

The formula for calculating simple interest is:
\[
\text{Interest} = P \times r \times t
\]
Plugging in the values:
\[
\text{Interest} = 1000 \times 0.10 \times 1 = 100
\]

2. **Calculate the total amount to be repaid:**
\[
\text{Total amount} = \text{Principal} + \text{Interest} = 1000 + 100 = 1100
\]

3. **Calculate the monthly payment:**
- Since the loan is to be paid back in 12 monthly installments, we divide the total amount by 12:
\[
\text{Monthly payment} = \frac{\text{Total amount}}{12} = \frac{1100}{12} \approx 91.67
\]

Therefore, the amount of each monthly payment is approximately **$91.67**.