Question

Joey realizes that he has charged too much on his credit card and has racked up $6,000 in debt. If he can pay $400 each month and the card charges 22 percent APR (compounded monthly), how long will it take him to pay off the debt assuming no new purchases are made on the card? (Show answers in months)

Answer 1

Information provided:

Present value (PV)= $6,000

Monthly payment (PMT)= $400

Monthly interest rate= yield to maturity (I/Y)= 22%/12= 1.8333%

The question is solved by calculating the time taken to pay off the debt.

Enter the below in a financial calculator to compute the time of the bond:

PV= -6,000

PMT= 400

I/Y= 1.8333

Press the CPT key and N to compute taken to pay off the debt.

The value obtained is 17.70.

Therefore, it will take Joey 17.70 months to pay off the debt.

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