Question

Sarah purchased a swing set for $1,450 using a six-month deferred payment plan. The interest rate after the introductory period is 19.99%. No down payment is required, but there is a minimum monthly payment of $20. What is the balance at the beginning of the seventh month if only the minimum payment is made each month during the introductory period?

Option 1: $1,481.10
Option 2: $1,330.00
Option 3: $1,450.00
Option 4: $1,601.10

Answer 1

The balance at the beginning of the seventh month, after making the minimum monthly payments of $20 on a swing set purchase of $1,450 with a zero-interest introductory period, is $1,330.00 (Option 2).

Step-by-step explanation:

The question involves calculating the balance on a purchase with a deferred payment plan at the beginning of the seventh month, given that only the minimum payment is made each month during the introductory period. Since there is no interest charged during the introductory period, the calculation is straightforward. Sarah buys a swing set for $1,450, with a minimum monthly payment of $20. So, for six months, she pays $20 each month, totaling $120 in payments.

The balance at the beginning of the seventh month is calculated:

Initial amount: $1,450

Total payments: 6 payments × $20 = $120

Balance: $1,450 - $120 = $1,330

Therefore, the correct balance at the beginning of the seventh month is $1,330.00, which corresponds to Option 2.