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In: Accounting

credit card payments: The outstanding balance on Bill’s credit card account is $3200. The bank issuing...

credit card payments: The outstanding balance on Bill’s credit card account is $3200. The bank issuing the credit card is charging 9.3%/year compounded monthly. If Bill de cides to pay off this balance in equal monthly installments at the end of each month for the next 18 months, how much will be his monthly payment? What is the effective rate of interest the bank is charging Bill?

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Expert Solution

Amount in $
Outstanding balance on Bill's credit card 3200
Interest charges is 9.3 % per year compounded monthly
The total amount after 18 months including the compound interest per month
formula, A   = P (1 + r/n) (nt)
where In the present scenario
A = the future value of the investment/loan, including interest have to calculate here
P = the principal investment amount (the initial deposit or loan amount) 3200
r = the annual interest rate (decimal) 9.3% = 0.093
n = the number of times that interest is compounded per year 12
t = the number of years the money is invested or borrowed for 18 months = 1.5 years
therefore , A = 3200 (1+0.093/12)(12*1.5)
3677.06
Monthly installment payment = 3677.06 /18 204.281
Effective rate of interest the bank is charging Bill = ( $ 3677.06 - $3200) / $3200 %
14.9081 %

ekkarill92 answered 2 years ago
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