Sharon purchased a sprinkler system for $1,950 using a six-month deferred payment plan. The interest rate after the introductory period is 23.99%. No down payment is required, but there is a minimum monthly payment of $25. What is the balance at the beginning of the seventh month if only the minimum payment is made each month during the introductory period?

Question

Sharon purchased a sprinkler system for $1,950 using a six-month deferred payment plan. The interest rate after the introductory period is 23.99%. No down payment is required, but there is a minimum monthly payment of $25. What is the balance at the beginning of the seventh month if only the minimum payment is made each month during the introductory period?

A $2,045.91
B $1,950.00
C $2,195.91
D $1,800.00

my answer is d because the interest hasn't started yet

Answer 1

I agree,

but then pay this off as quickly as possible with such a high interest rate.

Notice the payment of $25 wouldn't even pay the interest.
(first months interest after introductory period
= 1800(.2399)(1/12) = $35.99

Answer 2

To calculate the balance at the beginning of the seventh month, we need to account for the deferred payment plan and the interest rate after the introductory period.

First, let's calculate the total minimum payments made during the introductory period, which is six months. Since the minimum monthly payment is $25, the total minimum payments made will be $25 multiplied by 6, which equals $150.

Now, let's subtract the total minimum payments made during the introductory period from the original purchase amount of $1,950.
$1,950 - $150 = $1,800.

Therefore, the balance at the beginning of the seventh month, if only the minimum payment is made during the introductory period, is $1,800, which corresponds to option D.