Example for Question 6

Question

If you use your credit card to pay for a new treadmill that costs $1,200 and do not pay on it until the second month, what will the 9.95% monthly interest charge be at the end of the first month? Show your work or explain how you got your answer.
Sample work and explanation:
The monthly interest charge is 9.95% of your $1,200 balance.
9.95% = 9.95/100 = 0.0995
Find Monthly interest charge:
(0.0995)($1,200) = $119.40
The monthly interest charge is $119.40.

Answer 1

To calculate the monthly interest charge on a $1,200 treadmill purchased with a credit card at an interest rate of 9.95%, let's follow the steps outlined in the explanation.

Step 1: Convert the percentage to a decimal

To convert the percentage to a decimal, divide by 100: \[ 9.95% = \frac{9.95}{100} = 0.0995 \]

Step 2: Calculate the monthly interest charge

Next, multiply the balance by the decimal interest rate to find the monthly interest charge: \[ \text{Monthly interest charge} = \text{Balance} \times \text{Interest Rate} \] Substituting in the values: \[ \text{Monthly interest charge} = 1200 \times 0.0995 \]

Step 3: Perform the calculation

Now, let's calculate it: \[ 1200 \times 0.0995 = 119.4 \]

Conclusion

Therefore, the monthly interest charge at the end of the first month would be $119.40.