Question

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

Answer 1

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.

Feel free to ask in case of any query relating to this question