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?
To calculate the monthly payment for the washer repair maintenance contract, we need to consider the true annual interest charge of 18%.
First, we divide the annual interest rate by 12 to get the monthly interest rate:
Monthly interest rate = Annual interest rate / 12 = 18% / 12 = 1.5%
Next, we add 1 to the monthly interest rate as a decimal:
1 + 1.5% = 1 + 0.015 = 1.015
Then, we raise this value to the power of 12 since there are 12 months in a year:
(1.015)^12 = 1.1956
Now, we divide the total price of the maintenance contract ($48) by the value we calculated above:
$48 / 1.1956 = $40.08
Therefore, the customer's monthly payment should be $40.08 to pay off the washer repair maintenance contract in equal monthly installments for one year at a true annual interest charge of 18%.