Question

You spent $2,588 on Christmas gifts and put the purchases on your credit card. Your credit

card has a 16.84% APR compounded monthly. If you want to pay off your credit card balance

in 15 months, the first payment next month, how big are the monthly payments?

Calculate your answer to two decimal places (e.g. 55.93)

Answer 1

Amount spent on credit card = 2,588

interest charged annually = 16.84%

time taken to pay back all the amount = 15 months

Using the Present value formula of ordinary annuity, we can find the monthly installment amount of this;

PV = {A(1-1/(1+i)^n)}/i

where PV is the present outstanding payment = 2588

n is the number of installments = 15 (as one installment every month)

i is the interest charged compunded monthly = 16.84/12 =1.403%

A is the monthly payment or installment amount

=> A = $192.483