Question

You owe $1,753.42 on a credit card with a limit of $3,000.00 at a rate of 15.5% APR. You pay $400.00 the first 2 months and then

$200.00 until the bill is paid off. You pay the bill on the due date each month.
1) Complete the table showing the decreasing debt.
2) How much is your last payment?
3) What is the total amount paid by the time you pay off the credit card?
4) What was your debt ratio at the beginning?
Be sure to include in your response:
All parts of the table are complete and calculations correct
The answers to the additional questions
Month
Principal
Interest
accrued
Payment (on
due date)
End-of-
month
balance

Answer 1

9514 1404 393

Answer:

1. see attached
2. $33.97
3. $1833.97
4. 0.584

Explanation:

1. We cannot be sure of your table headings, so we used ones that seem to fit. The completed table is attached.

The amount of interest is computed first. It is the product of the previous balance and the monthly interest rate: 0.155/12. This amount is rounded to cents, as it would be in real life.

The remainder of the payment after interest is paid goes to reduction of the principal amount owed. That payment to principal is subtracted from the previous EOM Balance to give the new end-of-month balance.

The total of payments to date is found in the Accrued Pmt column.

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2. For the last payment, we made note of the interest owed and the outstanding balance, and added those values to get the payment amount. The result is the final balance is zero. The last payment is $33.97.

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3. The total of all payments is $1833.97.

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4. The "debt ratio" is presumed to mean the ratio of the credit card balance to the credit card limit. That ratio is ...

1753.42/3000 ≈ 0.584 . . . . "debt ratio"

_____

Additional comment

Various definitions of "debt ratio" are used by different folks for different purposes. Sometimes, it means the ratio of debt to income. Sometimes it means the ratio of minimum payments due to income. Here, we're not given any income information, so we presume the ratio is supposed to mean the fraction of credit limit that is being utilized.