Question

Kylie owes $1,700 on her credit card. The bank charges a monthly interest rate of 0.925%. If Kylie wants to pay off her credit card using equal monthly payments over the next 8 months, what would the monthly payment be, to the nearest dollar?​

Answer 1

$221.44

Explanation:

As the bank charges a monthly interest, we cannot calculate a simple or compound interest over the 8 month period. As the balance will decrease each month as Kylie makes payments, the interest applied each month will also decrease. Therefore, we have to use:

Monthly Payment Formula

`\sf PMT=(Pi(1+i)^n)/((1+i)^n-1)`

where:

• PMT = monthly payment
• P = loan amount
• i = interest rate per month (in decimal form)
• n = term of the loan (in months)

Given:

• P = $1,700
• i = 0.925% = 0.00925
• n = 8 months

Substituting the given values into the formula and solving:

`\implies \sf PMT=(1700(0.00925)(1+0.00925)^8)/((1+0.00925)^8-1)=221.4403207`

Therefore, the monthly payment to the nearest dollar will be $221.44