you have a credit card debt of $5,000. How much should you pay each month to pay off if your credit card carries an interest rate of 20.05% and you want to pay off the debt with equal monthly payments in two years and six months?
A. $129.73
B. $210.56
C. $213.27
D. None of above
The amount is computed as shown below:
Present value = Monthly payment x [ (1 – 1 / (1 + r)n) / r ]
r is computed as follows:
= 20.05% / 12 (Since the payment are monthly, hence divided by 12)
= 1.670833333% or 0.01670833333
n is computed as follows:
= 2.5 years x 12 (Since the payment are monthly, hence multiplied by 12)
= 30
So, the amount will be computed as follows:
$ 5,000 = Monthly payment x [ (1 - 1 / (1 + 0.01670833333)30 ] / 0.01670833333 ]
$ 5,000 = Monthly payment x 23.44417269
Monthly payment = $ 5,000 / 23.44417269
Monthly payment = $ 213.27 Approximately
So, the correct answer is option C.
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