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Answer: 173.04 dollars</h3>
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Explanation:
The down payment is $400, so that means they must pay back 1495-400 = 1095 dollars. Let L = 1095 be the amount loaned
The annual interest rate is 28% which means r = 0.28; the monthly interest rate is i = r/12 = 0.28/12 = 0.02333 approximately
There are 12 months in a year, so n = 12 is the number of payment periods
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In summary so far, we have
- L = 1095
- i = 0.02333 (which is approximate)
- n = 12
Those values will be plugged into the monthly payment formula below
M = L*( i*(1+i)^n )/( (1+i)^n - 1 )
M = 1095*( 0.02333*(1+0.02333)^12 )/( (1+0.02333)^12 - 1 )
M = 105.671914631108
M = 105.67
The monthly payment is $105.67
If they have a monthly payment of $105.67, and they pay that for 12 months, then 12*105.67 = 1,268.04 dollars is the amount of money they pay back to the credit card company.
The total amount of interest would be 1,268.04 - 1,095 = 173.04 dollars
Side note: the formula is a complicated ugly mess, so it's understandable to use calculators that already have the formula built in. Many websites offer free calculators that do this.
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