Question

Kylie owes $1,700 on her credit card. The bank charges a monthly interest rate of 0.925%. If Kylie wants to pay off her credit card using equal monthly payments over the next 8 months, what would the monthly payment be, to the nearest dollar?​

Answer 1

Answer:

$221.44

Step-by-step explanation:

As the bank charges a monthly interest, we cannot calculate a simple or compound interest over the 8 month period.  As the balance will decrease each month as Kylie makes payments, the interest applied each month will also decrease.  Therefore, we have to use:

Monthly Payment Formula

$\sf PMT=\dfrac{Pi(1+i)^n}{(1+i)^n-1}$

where:

• PMT = monthly payment
• P = loan amount
• i = interest rate per month (in decimal form)
• n = term of the loan (in months)

Given:

• P = $1,700
• i = 0.925% = 0.00925
• n = 8 months

Substituting the given values into the formula and solving:

$\implies \sf PMT=\dfrac{1700(0.00925)(1+0.00925)^8}{(1+0.00925)^8-1}=221.4403207$

Therefore, the monthly payment to the nearest dollar will be $221.44