Question

sarah bought a raft for $706 using her credit card. The interst rate is 0.193 compounded...

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).

Homework Answers

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.

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