Question

You accumulated a balance of $2,300 on your credit card that carries an interest rate of 17%. You can't afford to pay the $2,300 all at once, but you can pay the minimum payment, which is 2% per month or $25, whichever is greater. What is the balance on your card after 5 years?

Answer 1

$1,591.67

Explanation:

The computation of the balance after 5 years is shown below:

Given that

Accumulated Balance on Credit Card = P = $2,300

r = Monthly interest amount = 17% ÷ 12 = 1.41666667%

M = Minimum payment = 2%

Now

Balance on Credit Card after t year = P × (1+r) ×(1-M)

= $2,300 × (1+1.41666667%)^t × (1 - 2%)^t

= $2,300 × (0.993883337)^t

SO,

Balance on Credit Card after 5 years is

= $2,300 × (0.993883337)^60

= $2,300 × 0.692029437

= $1,591.66771

= $1,591.67