Question

5.27

eBook Simon recently received a credit card with an 18% nominal interest rate. With the card, he purchased an Apple iPhone 7 for $363.77. The minimum payment on the card is only $20 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 whole number.   month(s) If Simon makes monthly payments of $65, how many months will it be before he pays off the debt? Do not round intermediate calculations. Round your answer to the nearest whole number.   month(s) How much more in total payments will Simon make under the $20-a-month plan than under the $65-a-month plan. Do not round intermediate calculations. Round your answer to the nearest cent. $

Answer 1

a. Information provided:

Present value= $363.77

Interest rare= 18%/12= 1.50% per month

Monthly payment= $20

The time to payoff the card is computed by entering the below in a financial calculator:

PV= -363.77

I/Y= 1.50

PMT= 20

Press the CPT key and N to compute the time to payoff the card.

The value obtained is 21.2983.

Therefore, Simon will take 21.30 months to payoff the card.

b. Information provided:

Present value= $363.77

Interest rare= 18%/12= 1.50% per month

Monthly payment= $65

The time to payoff the card is computed by entering the below in a financial calculator:

PV= -363.77

I/Y= 1.50

PMT= 65

Press the CPT key and N to compute the time to payoff the card.

The value obtained is 5.8891.

Therefore, Simon will take 5.89 months to payoff the card.

c.Difference in total payments= $20*21.30 - $65*5.89           

                                                         = $426 – 382.85

                                                         = $43.15

Therefore, Simon will $43.15 under the $20 a month plan than $65 a month plan.

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