Problema Solution

Paul paid $663 for a new freezer. He paid for the freezer with his credit card, which has an interest rate of 15.28% compounded monthly, and made monthly payments for five years until the freezer was paid off. He kept the freezer for seven years, and it used an average of $2.14 of electricity per week. Paul made no other purchases or payments with his credit card until the freezer was paid off. Between the interest and the electricity, which component of the lifetime cost of the freezer was greater, and how much greater was it? (Round all dollar values to the nearest cent.)

Answer provided by our tutors

let


P = $663 the principal

A = the future value

t = 5 years

r = 0.1528 or 15.28% annual rate

I = the interest


the interest I is equal to:


I = A - P


I = 663(1 + 0.1528/12)^(5*12) - 663


I = 663(1 + 0.1528/12)^60- 663


I = 1416.51 - 663


I = $753.51


the electricity for 7 years, and 52 weeks per year is equal to:


7*52*2.14 = $778.96


the electricity cost is bigger then the interest: $778.96 > $753.51 by $25.45:


$778.96 - $753.51 = $25.45.