Many college students have Visa credit cards that carry an interest rate of simple 24% per year (that is

Economics Dec 12, 2020

Many college students have Visa credit cards that carry an interest rate of simple 24% per year (that is. 2% per month). When the balance on such a card is $5000, the minimum payment is $110.25. (a) What is the amount of interest in the first payment (b) How long will it take, in months, to pay off the balance of the cardholder continues to make payments of $110.25 per month and adds no other charges to the card

Expert Solution

a). the payment is $110.25

interest is 2% of $5000 = 0.02*5000 = $100

therefore amount of interest in $110.25 is $100

b). $100 goes as interest

remaining = 110.25 - 100 = $10.25

this much amount continues to pay off the balance each month

therefore 10.25^n = 5000

n = 5000/10.25 = 487.8 months

so it will take 487.8 months to pay off the balance

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