Simon recently received a credit card with an 20% nominal interest rate. With th

Question

Simon recently received a credit card with an 20% nominal interest rate. With the card, he purchased an Apple iPhone 5 for $300. The minimum payment on the card is only $10 per month.

If Simon makes the minimum monthly payment and makes no other charges, how many months will it be before he pays off the card? Do not round intermediate calculations. Round your answer to the nearest month.
42 months

If Simon makes monthly payments of $30, how many months will it be before he pays off the debt? Do not round intermediate calculations. Round your answer to the nearest month.
12 months

How much more in total payments will Simon make under the $10-a-month plan than under the $30-a-month plan. Do not round intermediate calculations. Round your answer to the nearest cent.
???

Explanation / Answer

A.Given information

Rate = 20% annual , so monthly interest rate will be 20/12=1.667

Present value= $300

PMT annuity = $10

Now in BA II plus calculator.

I/Y= 1.67

PV= 300

PMT = -10

FV=0

CPT= N

You will get 41.97 as an answer, so it will take 42 months to pay.

B..Given information

Rate = 20% annual , so monthly interest rate will be 20/12=1.667

Present value= $300

PMT annuity = $30

Now in BA II plus calculator.

I/Y= 1.67

PV= 300

PMT = -30

FV=0

CPT= N

You will get 11.03 as an answer, so it will take 11 months to pay.

C.Payment made under $ 10 Plan = 10*41.97= $419.70

Payment made under $ 30 Plan = 30*41*11.03=330.90

Simon will make $419.70-$330.90= $88.80 more in total payment in $ 10 plan as compared to $30 plan

Related Questions

Navigate

• Browse (All)
• Browse S
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.