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You have credit card debt of $25,000 that has an APR? (monthly compounding) of 16%
You have credit card debt of $25,000 that has an APR? (monthly compounding) of 16%. Each month you pay the minimum monthly payment. You are required to pay only the outstanding interest. You have received an offer in the mail for an otherwise identical credit card with an APR of 12%. After considering all your? alternatives, you decide to switch? cards, roll over the outstanding balance on the old card into the new? card, and borrow additional money as well. How much can you borrow today on the new card without changing the minimum monthly payment you will be required to? pay? ?(Note: Be careful not to round any intermediate steps less than six decimal? places.)
With the question above answer this:
a) You can borrow $__________ on the new card without changing the minimum monthly payment you will be required to pay.
Expert Solution
First we calculate Monthly Payment:
Monthly Payment = $25,000*16%/12 = $333.33
Now we calculate Amount of Borrowings:
Amount of Borrowings = Monthly Payment / New Monthly Interest Rate
Here,
New Monthly Interest Rate = 12%/12 = 1%
Amount of Borrowings = $333.33/1% = $33,333.33
You can borrow $33,333.33 on the new card without changing the minimum monthly payment you will be required to pay.
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