Question

Your credit card has a balance of $3400 and an annual interest rate of 14%. You decide to pay off the balance over five years. If there are no further purchases charged to the card, you must pay $79 10 each month and you will pay a total $1346.00. Assume you decide to pay off the balance over one year rather than five. How much more must you pay each month and how much less will you pay in total interest? P Use PMT= to determine the regular payment amount. - nt - (₁+2) COL You will pay $ more each month. (Round to the nearest cent as needed.)

Answer 1

Using the PMT function in Excel, the payment amount for paying off the balance over one year is $306.44. This is calculated using the following formula:

=PMT(14%/12, 12, 3400)

To find out how much more you must pay each month, you can subtract the $79.10 monthly payment from the new monthly payment:

$306.44 - $79.10 = $227.34

Therefore, you would need to pay an additional $227.34 each month to pay off the balance over one year instead of five.

To calculate the total interest paid over one year, you can use the following formula:

=(((14%/12)*12*3400)/2)*(1+1/(1+(14%/12))^12)

This gives a total interest payment of $270.88 over one year.

To find out how much less you would pay in total interest, you can subtract the total interest payment for one year from the total interest payment over five years:

$1346.00 - $270.88 = $1075.12

Therefore, you would pay $1075.12 less in total interest by paying off the balance over one year instead of five.