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?

Answer 1

$4.39

Explanation:

Answer 2

His monthly payment should be $ 4.400639...

Explanation

Monthly payment formula is like...

`M= (P(1+r)^n *r)/((1+r)^n-1)` , where M is the monthly payment, P is the principal amount, r is the monthly interest rate in decimal and n is the total number of months.

Here given that, P = $ 48

r = 18% annually =
`(18)/(12)`% monthly = 1.5% monthly = 0.015

n = 1 year = 12 months

So, plugging these values into the above formula, we will get...

`M= (48(1+0.015)^1^2*0.015)/((1+0.015)^1^2 -1) \\ \\ M= (48*1.1956...*0.015)/(1.1956... -1)\\ \\ M= 4.400639...`

So, his monthly payment should be $ 4.400639...