This example is calculating the total cost of a $5,000 purchase using a formula related to simple interest. The formula given is:

$I = P \times R \times N$

Where:

• $I$ represents the interest,
• $P$ is the principal amount ($5000),
• $R$ is the rate of interest (15%, or 0.15), and
• $N$ is the number of periods (in months, 6 years means 72 months).

Here’s how we calculate the interest:

$I = 5000 \times 0.15 \times 6 = 4500$

After this, the total cost will be the sum of the principal amount and the interest:

$\text{Total cost} = P + I = 5000 + 4500 = 9500$

So, the total cost of the purchase after 6 years of monthly payments will be $9,500.

Would you like to explore this example further, or do you have any questions about the formula or calculation? Here are some related questions you can consider:

1. How would the total cost change if the interest rate was 10% instead of 15%?
2. How do monthly payments influence the overall cost of a loan?
3. What would happen if the loan term was extended to 10 years instead of 6 years?
4. Can the formula be applied to calculate compound interest as well?
5. How would you calculate the total amount paid if the monthly payments were different?

Tip: Understanding how interest rates and loan terms interact can help you make better financial decisions, like choosing between a higher interest rate or a longer repayment period.