Jean purchased a $995 stereo system on the installment plan. She paid
20% down. The finance charge on the remainder was 19.4%. She was
given 18 months to pay off the balance. What was her monthly payment?
a. $55.28
b. $66
c. $52.80
d. $44.22
The amount Jean paid as a down payment is 20% of $995, which is $199. The remaining balance is $796 ($995 - $199).
The finance charge on the remaining balance is 19.4%, which can be written as 0.194 as a decimal. To calculate the finance charge, we multiply the remaining balance by the decimal equivalent of the interest rate:
$796 x 0.194 = $154.264
This means Jean will pay $154.264 in finance charges over the course of the 18-month payment plan. To calculate her monthly payment, we add the remaining balance and the finance charge, and then divide by the number of months:
($796 + $154.264) ÷ 18 = $55.28
Therefore, Jean's monthly payment is $55.28, which is option a).