Question

Gavin owes$4,600 on his credit card. The bank charges an annual interest rate of 16.8%, compounded monthly. If Gavin wants to pay off his credit card using equal monthly payments over the next 7 months, what would the monthly payment be, to the nearest dollar?

Answer 1

Gavin should make a monthly payment of approximately $717 to pay off his credit card in 7 months.

Step-by-step explanation:

To calculate the monthly payment that Gavin should make to pay off his credit card in 7 months, we can use the formula for the monthly payment of an installment loan:

P = (r * PV)/(1 - (1+r)^(-n))

• P = monthly payment
• r = monthly interest rate
• PV = present value or the amount owed on the credit card
• n = number of months

Let's plug in the values for Gavin's credit card:

• PV = $4,600
• r = (16.8%/100)/12 = 0.014
• n = 7

Substituting these values into the formula, we get:

P = (0.014 * 4600)/(1 - (1+0.014)^(-7))

Simplifying the expression, we find that Gavin should make a monthly payment of approximately $717 to pay off his credit card in 7 months.