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Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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QUESTION: You have a credit card on which you currently owe $10,000. The card has a 19.99% annual interest rate and requires a minimum monthly payment of $200. Assume that you do not incur any other purchases on the card. Part 2: If you double the minimum payment, how long will it take you to pay off the card? How much total interest will you pay? How much interest cost will you save between (a) and (b)? Part 3: If you pay $100 per month, how long will it take you to pay off the card? Explain
Transcribed Image Text:QUESTION: You have a credit card on which you currently owe $10,000. The card has a 19.99% annual interest rate and requires a minimum monthly payment of $200. Assume that you do not incur any other purchases on the card. Part 2: If you double the minimum payment, how long will it take you to pay off the card? How much total interest will you pay? How much interest cost will you save between (a) and (b)? Part 3: If you pay $100 per month, how long will it take you to pay off the card? Explain
SAMPLE SOLUTION TO PART 1 $ 10,000.00 =19.99% /12 PV 1% PMT $ (200.00) ??? N = 108.30 months In years, N = months /12 = 180.30 / 12 9.03 years Therefore, if only the required minimum payment of $200 per month is made, it would take 9.03 years to pay off the existing credit card debt of $10,000 Interest = Total Payments - Loan = (108.30 * 200) - 10,000 $ 11,660.33 Thus, paying only the minimum balance results in interest charges of $11,660.33 (total payments of $21,660.33)
Transcribed Image Text:SAMPLE SOLUTION TO PART 1 $ 10,000.00 =19.99% /12 PV 1% PMT $ (200.00) ??? N = 108.30 months In years, N = months /12 = 180.30 / 12 9.03 years Therefore, if only the required minimum payment of $200 per month is made, it would take 9.03 years to pay off the existing credit card debt of $10,000 Interest = Total Payments - Loan = (108.30 * 200) - 10,000 $ 11,660.33 Thus, paying only the minimum balance results in interest charges of $11,660.33 (total payments of $21,660.33)
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