Question

Your service contract for washer repair maintenance is offered at $48 per year. If a customer wants to pay it off in equal monthly installments for one year and if the true annual interest charge is 18%, what should his monthly payment be?

$4.72
$4.68
$4.39

Answer 1

The customer's monthly payment for the washer repair maintenance contract should be $4.68.

Step-by-step explanation:

Loan amount and interest: The loan amount is $48 (annual contract cost) and the annual interest rate is 18%. Since the loan is paid monthly, we need to calculate the monthly interest rate.

Monthly interest rate: Divide the annual interest rate by the number of payments per year (12 months): 18% / 12 = 1.5% per month.

Loan formula: We can use the loan formula to calculate the monthly payment:

Monthly payment = (Loan amount * Monthly interest rate) / (1 - (1 + Monthly interest rate)^(-Number of payments))

Plug in the values: Substitute the values into the formula:

Monthly payment = ($48 * 0.015) / (1 - (1 + 0.015)^(-12))

Monthly payment ≈ $4.68

Therefore, the customer's monthly payment for the washer repair maintenance contract should be $4.68.

Answer 2

$4.72 per month

Step-by-step explanation:

The true interest rate is how much more he has to give with interest.

Let's find the interest on $48 first.

Let's convert 18% to decimal, that is:

18/100 = 0.18

Now, to find 18% of $48, we multiply, so,

Interest = $48 * 0.18 = $8.64

In total, he has to pay:

48 + 8.64 = $56.64

This is spread over 12 months (since he has to pay in 1 year), so each month payment would be:

56.64/12 = $4.72 per month