Question

In: Accounting

1- Suppose that on January 1 you have a balance of ​$5000 on a credit card...

1- Suppose that on January 1 you have a balance of ​$5000 on a credit card whose APR is. 14​%,which you want to pay off in1

year. Assume that you make no additional charges to the card after January 1.

A-The monthly payment is

B-he total paid since January 1 is

C-The percentage of the total paid that is interest is

2- Suppose that on January 1 you have a balance of$4600 on a credit card whose APR is 17​%,which you want to pay off in3

years. Assume that you make no additional charges to the card after January 1.

a. Calculate your monthly payments.

b. When the card is paid​ off, how much will you have paid since January​ 1?

c. What percentage of your total payment​ (part b) is​ interest?

3- Suppose you have a student loan of​$35,000 with an APR of6​%for 30 years. Complete parts​ (a) through​ (c) below.

A-The required monthly payment is

b-Suppose you would like to pay the loan off in10years instead of20.What monthly payments will you need to​ make?

C- ompare the total amount​ you'll pay over the loan term if you pay the loan off in10years versus 20 years.

Solutions

Expert Solution

ANSWER 1:

Assume that the monthly payments are made at the end of the month. The present value of monthly

payments of $P during n years is

In this case APR=14%=0.14 and n=1

Therefore the present value of the monthly payments as of  January 1st. is

and this present value must be equal to the balance on the credit card. Therefore

Therefore the monthly payment is $ 448.93

B.

You will have made 12 payments of 448.93$

Therefore y;ou will have paid 12 x $ 448.93= $ 5387.16

The percentage of the total payment that is interest is:

ANSWER 2 :

Assume that the monthly payments are made at the end of the month. The present value of monthly

payments of $P during n years is

In this case APR=17%=0.17 and n=3

Therefore the present value of the monthly payments as of  January 1st. is

and this present value must be equal to the balance on the credit card. Therefore

Therefore the monthly payment is $ 164

B.

You will have made 36 payments of $164

Therefore y;ou will have paid 36 x $ 164= $5904

The percentage of the total payment that is interest is:

5904-4600}{5904}= 0.220=22.08%

ANSWER 3:

Assume that the monthly payments are made at the end of the month. The present value of monthly

payments of $P during n years is

In this case APR=14%=0.14 and n=1

Therefore the present value of the monthly payments as of  January 1st. is

and this present value must be equal to the balance on the credit card. Therefore

Therefore the monthly payment is $ 20.98


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