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Suppose your credit card balance is $16,000
Suppose your credit card balance is $16,000. The minimum payment is $328, and the annual percentage rate is 18.2%.
a). If you make a constant monthly payment of $328, how long will it take you to pay off the credit card balance?
b). How much interest will you pay if you elect to make the minimum payment?
Expert Solution
a). We can calculate the number of months by using the following formula in excel:-
=nper(rate,pmt,-pv,fv)
Here,
Nper = Number of months
Rate = 18.2%/12 = 1.5167% (monthly)
Pmt = $328
PV = $16,000
FV = $0
substituting the values in formula:
= nper(1.5167%,328,-16000,0)
= 89.45 months
Computation of the total interest paid:-
Interest paid = Total payment - Principal
= (89.45 * $328) - $16,000
= $29,339.06 - $16,000
= $13,339.06
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