Question

Jill has a balance of $5,000 on one credit card with an annual interest rate of 10%. To pay of the $5,000 in three years, Jill will have to make a minimum payment of $161.34 per month. On a second credit card, Jill has a balance of $5,000 with an annual interest rate of 5%. To pay off the $5,000 in three years, Jill will have to make a minimum payment of $149.85 per month. How much more does Jill have to pay when the interest rate changes from 5% to 10% on the $5,000 balance?

Answer 1

Jill has to pay US$ 413.64 in addition when the interest rate changes from 5% to 10% on the US$ 5,000 balance

Explanation:

1. Let's review the information given to us to answer the question correctly:

Minimum monthly payment Jill have to make to pay the balance of US$ 5,000 with an annual interest rate of 10% = US$ 161.34

Minimum monthly payment Jill have to make to pay the balance of US$ 5,000 with an annual interest rate of 5% = US$ 149.85

Time it takes pay totally the US$ 5,000 on both credit cards = 3 years

2. How much more does Jill have to pay when the interest rate changes from 5% to 10% on the $5,000 balance?

To find the difference between the two credit cards monthly payments, we make this calculation:

Difference = Minimum monthly payment Jill have to make to pay the balance of US$ 5,000 with an annual interest rate of 10% - Minimum monthly payment Jill have to make to pay the balance of US$ 5,000 with an annual interest rate of 5%

Difference = 161.34 - 149.85

Difference = US$ 11.49 per month

Now, for calculating how much more Jill has to pay when the interest rate changes from 5% to 10% on the US$ 5,000 balance, we use this multiplication:

Monthly difference * 3 years = monthly difference * 36 months

= 11.49 * 36 = 413.64

Jill has to pay US$ 413.64 in addition when the interest rate changes from 5% to 10% on the US$ 5,000 balance