Simon recently received a credit card with an 18% nominal interest rate. With the card, he purchased an Apple iPhone 6 for $372 71. The minimum payment on the card is only $10 per month.
If Simon makes the minimum monthly payment and makes no other charges, how many months will it be before he pays off the card? Round to the nearest month. Show your work (explain how you calculated the required value).
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The relation between the number of payment, periodic payments, loan amount and interest rate can be expressed as:
Where A= the loan amount; P= periodic payments; r= interest rate; n= the number of periods.
So as to find how long Simon will take to service the loan, we need to make n the subject. This can be expressed as follows:
In our case, A=$372.71, r=18%/12=0.015, P=10. What follows is that we substitute these figures into the above equation.
