Question

The Kirkland family is buying a new living room set that costs $1,495.

Answer 1

Answer:   173.04 dollars

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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.