Question

You have $2,000 on a credit card that charges a 16% interest rate. If you want to pay off the credit card in 5 years, how much will you need to pay each month (assuming you don't charge anything new to the card)?

Answer 1

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Answer:

$48.64

Explanation:

The monthly payment amount is given by the amortization formula ...

A = P(r/n)/(1 -(1 +r/n)^(-nt))

where P is the loan amount, r is the annual interest rate compounded n times per year for t years.

Here, you have P=2000, r=0.16, n=12 (months per year), t=5 (years), so the payment is ...

A = $2000(0.16/12)/(1 -(1 +0.16/12)^(-12·5)) = $320/(12(0.54828942))

A ≈ $48.636 ≈ $48.64

You will need to pay $48.64 each month to pay off the charge in 5 years.