Need help with Interest question?

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In summary, Lee is looking to buy a downhill ski package for \$1894 that includes skis, poles, bindings, and boots. The finance plan involves a \$150 down payment and monthly payments of \$113 for 1.5 years. To find the annual interest charge, we can use the formula A=P \left(1 +\frac{r}{n} \right)^{nt}, where A is the final amount, P is the principal amount, r is the annual interest rate, n is the number of compounding periods per year, and t is the number of years. However, the term "annual interest charge" is not commonly used, so it may be referred to as something else.
  • #1
Tazook
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20. Lee wishes to purchase a downhill ski package that includes the skis, poles, bindings, and boats. The selling price is \$1894. The finance plan includes a \$150 down payment and payments of \$113 each at the end of the month for

1.5 years. Find the annual interest charge, if the interest charge is
a) monthly compounded b) yearly compounded

Please explain in detail... think I am a martian
 
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  • #2
Hi Tazook,

Welcome to MHB! :)

We don't fully answer problems here, rather try to help you solve them so let's see what we can do.

Usually with compound interest problems we use the following formula: \(\displaystyle A=P \left(1 +\frac{r}{n} \right)^{nt}\). However this seems like a slightly different situation.

I found another formula that might apply. Does the one on this Wikipedia page look familiar?

The reason I'm a bit confused is because the term "annual interest charge" is not one I'm familiar with. If we search this exact phrase on Google there are not that many results which makes me think there might be another common name for it.
 
  • #3
Thanks for the wiki link... it really cleared everything...
 

Related to Need help with Interest question?

1. What is interest?

Interest is the additional amount of money that is paid on top of the principal amount borrowed or invested. It is a percentage of the principal and is charged or earned over a certain period of time.

2. What types of interest are there?

There are two main types of interest: simple interest and compound interest. Simple interest is calculated as a percentage of the principal amount, while compound interest is calculated on both the principal and accumulated interest.

3. How is interest calculated?

The formula for calculating simple interest is: I = P x r x t, where I is the interest, P is the principal, r is the interest rate, and t is the time period. For compound interest, the formula is: A = P (1 + r/n)^nt, where A is the total amount, P is the principal, r is the annual interest rate, n is the number of compounding periods per year, and t is the number of years.

4. What factors affect interest rates?

Interest rates can be affected by various factors such as inflation, economic conditions, the supply and demand of money, and the creditworthiness of the borrower. Generally, higher inflation and a greater demand for money can lead to higher interest rates, while a stronger economy and lower risk can result in lower interest rates.

5. How can I lower the amount of interest I have to pay?

To lower the amount of interest you have to pay, you can try negotiating with your lender for a lower interest rate, making extra payments towards the principal, or refinancing your loan. You can also try to improve your credit score and financial situation to be eligible for better interest rates in the future.

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