Question

Chris has an outstanding credit card balance of $1438.59. His credit card has an APR of 23.99% and he would like to have a zero balance two years from now. How much should he pay each month to reach this goal

Answer 1

Chris will have to pay $76.05 per month for two years to have a zero balance in two years time.

Step-by-step explanation:

We firstly evaluate Chris problem by seeing that the $1438.59 is the present value which will require future cash periodic consistent payments which tells us that this is a present value annuity then therefore we will use the following formula :

`Pv = C[(1-(1+i)^-n )/i]`

Where;

Pv is the present value of $1438.59 which needs to be paid in future monthly payments.

C is the monthly payments value that we will calculate

i is the interest rate charged per month which will be 23.99%/12

n is the number of periods in which this balance will be paid in 2 years x 12 months = 24 months.

now we will substitute the above information to the above mentioned formula and solve for C which will be :

$1438.59 = C[(1-(1+(23.99%/12))^-24)/(23.99%/12)] now we will divide both sides by what is multiplied by C to solve for C.

$1438.59/[(1-(1+(23.99%/12))^-24)/(23.99%/12)] = C

$76.05 = C

Therefore the monthly payment that Chris must pay will be $76.05 to have a balance of zero on the credit card after two years.