Question

A borrower owes $5,295 on a credit card with a 22.4% interest rate compounded monthly. What monthly payment should be made in order to pay off this debt in 12 months, assuming there are no more purchases made with the card?

A spreadsheet was used to calculate the correct answer. Your answer may vary slightly depending on the technology used.

$500.69
$508.10
$449.49
$496.60

Answer 1

$ 496.60

Explanation:

This is an ordinary annuity situation. Here is the formula to use:

PV = C ( 1 -(1+i)^-n ) / i

(ya just have to look up these finance equations)

PV = $ 5295 C = payment i = periodic interest in decimal = .224/12

periods = n = 12

Plugging in these values results in this:

5295 = C (10.66246)

C= $ 496.60