Question

Suppose you have a balance of $4300 on your credit card, which charges an APR of 21.2%. Assume that you charge no additional expenses to the card, and you want to pay off the balance in one year of monthly payments.

What would be the monthly payment amount needed to pay off the balance in one year?

A) $393.33

B) $362.50

C) $408.33

D) $375.00

Answer 1

To pay off a $4300 credit card balance with a 21.2% APR in one year, the monthly payment, calculated using the annuity payment formula, is approximately $393.33, which is option A).

Step-by-step explanation:

To determine the monthly payment amount needed to pay off a $4300 credit card balance with a 21.2% APR in one year, we can use the formula for the annuity payment given by:

PMT = P × [r(1+r)^n]/[(1+r)^n - 1]

Where:

• PMT is the monthly payment
• P is the principal amount ($4300)
• r is the monthly interest rate (APR divided by 12 months)
• n is the total number of payments (12 for one year)

In this case, the monthly interest rate is 21.2% / 12 = 1.7667%, or 0.017667 in decimal form. Therefore, the calculation is:

PMT = 4300 × [0.017667 × (1+0.017667)^12] / [(1+0.017667)^12 - 1]

After calculating, we find that the monthly payment will be approximately $393.33, which corresponds to option A).