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You just bought a new tablet computer for including tax. There are no required payments for six months, but the company does charge annual interest, compounded monthly, on any unpaid balance.

  1. What is the monthly interest rate?

    Annual is yearly, so per year is what percent each month?

  2. Write an equation that models the cost of your tablet each month if you make no payments.

    Substitution yields:
    where represents time in months.

  3. If you do not make any payments for six months, how much will you owe for your new tablet?

    Use the equation in part (b).

  4. What is the effective annual rate of interest if you do not make any payments for a year? (Hint: Because the interest is compounded monthly, the effective, or actual annual rate is higher than .)

    Using the equation from part (b), how much money in interest would you have paid for twelve months? What percentage of is this?