Newton uses a credit card with a 18.6% APR, compounded monthly, to pay for a cruise totaling $1,920.96. He can pay $720 per month on the card. What will the total cost of this purchase be?
The principal is $1920.96 .
APR 18.6% .
Interest is compounded monthly .
Formula for compound interest is
A = P (1+r/t) ^n(1/t)
P = principal amount (the initial amount you borrow) which is $1920.96
r = annual rate of interest (as a decimal) = 0.186
t = period
A = amount of money accumulated after n years, including interest.
n = number of times the interest is compounded per year = 12 times .
A = P (1+r/t) ^n(1/t)
A = 1920.96*(1+0.186/12)^12(1/12)
= 1920.96(1+1.0155)
= 1951.04
which is the total cost of this purchase.
