A car is purchased on hire purchase with simple interest charged on the balance. The cash price is $21,000. The buyer pays a deposit of 10% of the cash price and agrees to pay the remaining balance over 60 equal monthly instalments. If simple interest is charged at 12% per annum on the balance for the full 60 months, what is the value of each monthly instalment?

Introduction:
This question tests hire purchase calculations where simple interest is charged on the financed balance, and the total payable is then split into equal monthly instalments. The key is to compute the deposit, determine the balance, compute simple interest on that balance for the full term, then divide the total repayable by the number of instalments.

Given Data / Assumptions:

• Cash price = $21,000
• Deposit = 10% of $21,000
• Balance is paid in 60 equal monthly instalments
• Simple interest rate = 12% per annum on the balance
• 60 months = 5 years
• Formula: SI = (P * r * t) / 100

Concept / Approach:
Compute financed principal (balance) after deposit. Then compute total interest on that balance using simple interest for 5 years at 12% per annum. Add interest to balance to get total amount to be repaid via instalments. Divide by 60 to get each monthly instalment.

Step-by-Step Solution:
Deposit = 10% of 21000 = (10/100) * 21000 = 2100 Balance financed = 21000 - 2100 = 18900 Time = 60 months = 5 years Interest on balance: SI = (18900 * 12 * 5) / 100 SI = 18900 * 60 / 100 = 18900 * 0.60 = 11340 Total repayable through instalments = 18900 + 11340 = 30240 Monthly instalment = 30240 / 60 = 504

Verification / Alternative check:
Monthly instalment of $504 over 60 months gives 504 * 60 = $30,240, which matches the computed total repayable (balance + interest). Consistency confirms correctness.

Why Other Options Are Wrong:
$503 and $505 are near distractors but do not sum to the exact total repayable. $506 gives too high a total. $520 is far too high compared to the computed financed total.

Common Pitfalls:
Charging interest on the full cash price instead of only the balance, forgetting to convert months to years, or dividing the balance alone (without adding interest) by 60.

Final Answer:
The monthly instalment is $504.