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?
Accepted Solution
A:
His monthly payment should be $ 4.400639...ExplanationMonthly payment formula is like...[tex]M= \frac{P(1+r)^n *r}{(1+r)^n-1}[/tex] , 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 = [tex]\frac{18}{12}[/tex]% monthly = 1.5% monthly = 0.015n = 1 year = 12 months So, plugging these values into the above formula, we will get...[tex]M= \frac{48(1+0.015)^1^2*0.015}{(1+0.015)^1^2 -1} \\ \\ M= \frac{48*1.1956...*0.015}{1.1956... -1}\\ \\ M= 4.400639...[/tex]So, his monthly payment should be $ 4.400639...