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Suppose your credit card balance is $15,500
Suppose your credit card balance is $15,500. The minimum payment is $354, and the annual percentage rate is 20.7%. a. If you make a constant monthly payment of $354, 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. Computation of Time it will take to payoff the loan using NPER Function in Excel:
=nper(rate,pmt,-pv,fv)
Here,
NPER = Number of Periods = ?
Rate = 20.7%/12 = 1.725% compounded monthly
PMT = $354
PV = $15,500
FV = 0
Substituting the values in formula:
=nper(1.725%,354,-15500,0)
Nper or Number of Periods = 82.31 months or 6.86 Years
So, It will take 82.31 months or 6.86 Years to payoff the credit balance.
b. Computation of Interest:
Total Payment = $354*82.31 = $29,137.08
Interest = Total Payment - Principal
= $29,137.08 - $15,500
Interest = $13,637.08
So, You will pay $13,637.08 for interest.
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