45.0k views
2 votes
A borrower owes $5,675 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 with the card?

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

User Brian Lam
by
7.6k points

2 Answers

6 votes

Answer:

Explanation:

User DmitrySemenov
by
8.7k points
4 votes

The borrower should make a monthly payment of $528.82 to pay off the debt in 12 months.How is interest determined?We may apply the formula for monthly payment on a fixed term loan to determine the monthly payment necessary to pay off a credit card debt of $5,675 with a 22.4% annual interest rate compounded monthly in 12 months:P = (1 - (1+r)(-n))/[r(PV)]where P denotes the monthly payment, r denotes the monthly interest rate, PV is the present value of the debt ($5,675), and n denotes the number of monthly payments (12).Inputting the values provided yields:P = (0.224/12)(5675)/[1 - (1+0.224/12)^(-12)]P = $528.82So, assuming no further transactions are made using the card, the borrower should make a monthly payment of $528.82 to pay off the debt in 12 months.

User Eugene Tusmenko
by
7.9k points
Welcome to QAmmunity.org, where you can ask questions and receive answers from other members of our community.

9.4m questions

12.2m answers

Categories