Question

3) Present Value: Ordinary Annuity You decided to take a nice vacation and put it on your credit card. The total amount was $5,000 and your credit card company charges you 15% interest compounded monthly. (In reality they compound daily, but to simplify the calculations assume it is done monthly). If you want to pay it off in 1 year, how much will your monthly payments need to be? a) Using the formula, determine the monthly payments: b) What is your total interest charged?

Answer 1

a)	EMI = [P x R x (1+R)^N]/[(1+R)^N-1]
	Where,
	EMI= Equal Monthly Payment
	P= Loan Amount
	R= Interest rate per period
	N= Number of periods
	= [ $5000x0.0125 x (1+0.0125)^12]/[(1+0.0125)^12 -1]
	= [ $62.5( 1.0125 )^12] / [(1.0125 )^12 -1
	=$451.29
b)	Total Payment = $451.2916*12
	=$5415.50
	Loan = $5000
	Interest paid = $5415.50-5000
	=$415.50