Question

Simon recently received a credit card with an 16% nominal interest rate. With the card, he purchased an Apple iPhone 5 for $300. The minimum payment on the card is only $10 per month.

If Simon makes the minimum monthly payment and makes no other charges, how many months will it be before he pays off the card? Do not round intermediate calculations. Round your answer to the nearest month.
month(s)

If Simon makes monthly payments of $30, how many months will it be before he pays off the debt? Do not round intermediate calculations. Round your answer to the nearest month.
month(s)

How much more in total payments will Simon make under the $10-a-month plan than under the $30-a-month plan. Do not round intermediate calculations. Round your answer to the nearest cent.

Answer 1

a) I/YR = 1.33 (16%/12); PV = 300; PMT = -10; FV = 0; and then solve for N = 38.567 ~ 39 months

b) If Simon makes monthly payments of $30, we can solve for the length of time required before the account is paid in full

I/YR = 1.33; PV = 300; PMT = -30; FV = 0; and then solve for N = 10.804 ? 11 months.

With $30 monthly payments, Simon will only need 11 months to pay off the account.

c).Total payments @ $10/month: 38.567 * $10 = $385.67

Total payments @ $30/month: 10.804 * $30 = $324.12

Extra interest = $61.55