In: Accounting
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.
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