The annual interest rate is 20.4% which is a 20.4/12 = 1.7% monthly rate.
1.7% = 0.017
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Month 1:
interest = 0.017*(current balance)
interest = 0.017*(1045.87)
interest = 17.77979
interest = 17.78
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principal = payment - interest
principal = 490 - 17.78
principal = 472.22
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new balance = (old balance) - principal
new balance = (1045.87) - 472.22
new balance = 573.65
at the end of month 1, the balance is $573.65
So far, you have paid $490
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Month 2:
interest = 0.017*(current balance)
interest = 0.017*(573.65)
interest = 9.75205
interest = 9.75
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principal = payment - interest
principal = 490 - 9.75
principal = 480.25
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new balance = (old balance) - principal
new balance = (573.65) - 480.25
new balance = 93.40
At the end of month 2, the balance is $93.40
So far, you have paid 490+490 = 980 dollars
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Month 3:
The current balance of $93.40 is less than $490, so we don't have to pay the full $490. We can simply pay off the remaining balance.
Add this to the current total paid amount so far to get 980+93.40 = 1,073.40
I'm not sure if I made a rounding error somewhere or if there is a typo. The closest answer choice I see is choice B. So I'm thinking the answer is choice B. I'd get a second opinion or ask the teacher on this one.
