You decide to quit using your credit card and want to pay off the balance of $11,800 in 5 years. Your interest rate is 16.05% compounded monthly. What will your monthly payments be? LA
You decide to quit using your credit card and want to pay off the balance of $11,800 in 5 years. Your interest rate is 16.05% compounded monthly. What will your monthly payments be? LA
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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![You decide to quit using your credit card and want to pay off the balance of $11,800 in 5 years. Your interest rate is 16.05% compounded monthly.
**What will your monthly payments be?**
_$[ ]_
**How much interest do you pay?**
_$[ ]_
This educational exercise is designed to help you calculate your monthly payments and the total interest paid on a credit card balance with a specified interest rate over a given time period. The scenario involves a balance of $11,800 to be paid off in 5 years with an interest rate of 16.05% compounded monthly.
To solve this, you would typically use the formula for an amortizing loan:
\[ M = \frac{P \cdot r \cdot (1 + r)^n}{(1 + r)^n - 1} \]
Where:
- \( M \) is the monthly payment.
- \( P \) is the principal amount ($11,800).
- \( r \) is the monthly interest rate (annual rate / 12).
- \( n \) is the total number of payments (months).
After finding the monthly payment, the total interest paid can be calculated by subtracting the initial principal from the total of all payments made over the 5 years. This exercise provides a practical example of how loan payments work and the impact of interest rates on repayment amounts.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F79b24956-5ec9-4c53-911d-9c67a7f313db%2F3fc4d6cb-a2f0-4a82-b7bb-3895ef4ab55d%2F8kgyo1_processed.jpeg&w=3840&q=75)
Transcribed Image Text:You decide to quit using your credit card and want to pay off the balance of $11,800 in 5 years. Your interest rate is 16.05% compounded monthly.
**What will your monthly payments be?**
_$[ ]_
**How much interest do you pay?**
_$[ ]_
This educational exercise is designed to help you calculate your monthly payments and the total interest paid on a credit card balance with a specified interest rate over a given time period. The scenario involves a balance of $11,800 to be paid off in 5 years with an interest rate of 16.05% compounded monthly.
To solve this, you would typically use the formula for an amortizing loan:
\[ M = \frac{P \cdot r \cdot (1 + r)^n}{(1 + r)^n - 1} \]
Where:
- \( M \) is the monthly payment.
- \( P \) is the principal amount ($11,800).
- \( r \) is the monthly interest rate (annual rate / 12).
- \( n \) is the total number of payments (months).
After finding the monthly payment, the total interest paid can be calculated by subtracting the initial principal from the total of all payments made over the 5 years. This exercise provides a practical example of how loan payments work and the impact of interest rates on repayment amounts.
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