Question

sarah bought a raft for $706 using her credit card. The interst rate is 0.193 compounded monthly. If she pays $25 a month, how long will it take her to pay off the credit card?

Round it to integer. (if it is 26.34 months, enter 26, if it is 26.54, enter 27).

Answer 1

Given that,

Sarah bought a raft for $706 using credit card

interest rate r = 0.193 or 19.3% compounded monthly

monthly payment on credit PMT = $25

So, using annuity formula to calculated months required

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

where n = compounding frequency = 12

PV = $706

So. 706 = 25*(1 - (1+0.193/12)^(-N))/(0.193/12)

=> 0.4542 = 1 - 1.0161^(-N)

=> 1.0161^(-N) = 0.5458

=> N = 37.95 months

So, it will take Sarah 38 months to pay off the loan.