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If your put a $ 2100 trip on your credit card that charges you an APR of 19
If your put a $ 2100 trip on your credit card that charges you an APR of 19.99% and make the minimum monthly payment of $45 (2 marks each part):
(a.)What is the effective rate of interest you are paying?
(b.) How long (to the nearest month) will it take you to pay off the credit card?
(c.) Assume your answer to part b is 84 months. Then, how much interest will you pay once the credit card debt is totally paid off?
please step by step solutions!
Expert Solution
1) Computation of Effective Rate of Interest:
Effective Rate of Interest = (1+r/n)^n - 1
Here,
r = APR = 19.99%
n = 12 months
Effective Rate of Interest = (1+19.99%/12)^12 -1 = 1.2193 - 1 = 0.2193 or 21.93%
2) Computation of Time using NPER Function in Excel:
=nper(rate,pmt,-pv,fv)
Here,
Nper = Number of Months = ?
Rate = 21.93%/12
PMT = $45
PV= $2,100
FV = 0
Substituting the values in formula:
=nper(21.93%/12,45,-2100,0)
NPER or Number of Months = 105.78 or 106 months
3) Computation of Total Interest:
Total Payment = 84*$45 = $3,780
Total Interest = $3,780 - $2,100 = $1,680
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