James is buying a new living room set for $2,700 with a down payment of $500. The bank a approved a simple interest flat rate loan for 3 years at 12% APR. How much are the monthly loan payments?

Step 1; The bank offers an amount of $2,200 (Cost of $2,700 - a down payment of $500) )with an APR of 12%. This means that James must pay an interest of 12% of the $2,200 every year for 3 years. To calculate we must determine how much 12% of $2,200 is. To do that we make 12% a fraction by dividing it by 100 and multiplying it with the amount.

12% of $2,200 = [tex]\frac{12}{100}[/tex] × $2,200 = 0.12 × $2,200 = $264 per year.

Interest owed for 3 years =Interest owed a year × 3

= $ 264 per year × 3 = $792 for 3 years.

So total payment in 3 years = $2,200 + $792 = $2,972.

Step 2; To find the monthly payments we need to know how many months are in a 3 year period. Months in 3 years = 3 × 12 months = 36 months. The monthly payment is, therefore, payment owed in 30 years divided by the months in that 30 year period.

Monthly payment = $2,972 / 36= $ 83.11

So James must pay a monthly payment of $83.11 for 3 years.