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?
(48 * 1.18) / 12 = ?
I got 4.72& the computer says the answer was wrong.
I got $4.72 also.
Weird lol Well this is the formula I= 2yc/m(n+1)
y = payments per year; c = total interest paid; m = amount financed; n = total number of payments.
I do not know how to plug the numbers in right with this equation.
formula
To find the customer's monthly payment, we need to consider the true annual interest charge and the total cost of the service contract.
Step 1: Calculate the total cost of the service contract
Since the service contract costs $48 per year, the total cost for one year can be calculated as:
Total Cost = $48
Step 2: Calculate the true annual interest charge
The true annual interest charge is given as 18%. To convert it to a decimal, we divide it by 100:
True Annual Interest Rate = 18% = 0.18
Step 3: Calculate the monthly interest rate
To find the monthly interest rate, we divide the true annual interest rate by 12 (number of months in a year):
Monthly Interest Rate = True Annual Interest Rate / 12 = 0.18 / 12 = 0.015
Step 4: Calculate the monthly payment
We can use the formula for the monthly payment on a loan, which is given by:
Monthly Payment = Total Cost / (1 + Monthly Interest Rate)
Substituting the values we found earlier:
Monthly Payment = $48 / (1 + 0.015)
Calculating the value:
Monthly Payment = $48 / 1.015 ≈ $47.29
Therefore, the customer's monthly payment for the washer repair maintenance service contract would be approximately $47.29.