Question

If Martin buys a coke for $1.85 on a credit card that charges 22% interest compounded monthly what will the coke actually cost him if he does not pay the credit card off in five years?

Answer 1

Using compound interest, it is found that the coke will actually cost him $5.50.

Compound interest:

$A(t) = P\left(1 + \frac{r}{n}\right)^{nt}$

• A(t) is the amount of money after t years.  

• P is the principal(the initial sum of money).  

• r is the interest rate(as a decimal value).  

• n is the number of times that interest is compounded per year.  

• t is the time in years for which the money is invested or borrowed.

In this problem:

• The coke is bought for $1.85, hence $P = 1.85$.

• The interest rate is of 22%, hence $r = 0.22$.

• It is compounded monthly, hence $n = 12$.

• Five years, hence $n = 5$

Then:

$A(t) = P\left(1 + \frac{r}{n}\right)^{nt}$

$A(5) = 1.85\left(1 + \frac{0.22}{12}\right)^{12(5)}$

$A(5) = 5.50$

The coke will actually cost him $5.50.

A similar problem is given at https://brainly.com/question/14239300