Question

Your credit card has a balance of ?$3100 and an annual interest rate of 18?%. You decide to pay off the balance over two years. If there are no further purchases charged to the? card, you must pay ?$154.76 each month? , and you will pay a total interest of ?$614.24. Assume you decide to pay off the balance over one year rather than two. How much more must you pay each month and how much less will you pay in total? interest?

Answer 1

a.	Present Value of anuity of $ 1			=	(1-(1+i)^-n)/i		Where,
				=	(1-(1+0.015)^-12)/0.015		i	18%/12	=	0.015
				=	10.908		n	1*12	=	12
b.	Monthly payment over 1 year			=	Credit Card Balance / Present value of annuity of $ 1
				=	$       3,100.00	/	10.908
				=	$           284.21
c.	Total Payment over 1 year			=	$           284.21	x 12	=	$ 3,410.50
	Less:Credit Card balance							$ 3,100.00
	Total Interest Payment over 1 year							$     310.50
					Monthly Payment		Interest
d.	Monthly Payment over 2 years				$           154.76		$ 614.24
	Monthly payment over 1 year				$           284.21		$ 310.50
	Difference				$           129.45		$-303.74
	Thus,
	More needed to pay monthly				$ 129.45
	Less total interest payment				$ 303.74