Question

Simon recently received a credit card with a 21% nominal interest rate. With the card, he purchased an Apple iPhone 7 for $368.24. The minimum payment on the card is only $20 per month.

1. 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 whole number.

     month(s)

2. If Simon makes monthly payments of $65, how many months will it be before he pays off the debt? Do not round intermediate calculations. Round your answer to the nearest whole number.

     month(s)

3. How much more in total payments will Simon make under the $20-a-month plan than under the $65-a-month plan. Do not round intermediate calculations. Round your answer to the nearest cent.

   $  

Answer 1

(a) With only minimum monthly payments ($20 each), it will take 22 months to pay off the dues, calculated using the NPER function of Excel as follows:

CS - ENPER(C2,C3,C4*-1) в D А 1 Interest rate Yearly 2 Interest rate monthly 3 Monthly payments 4 Loan amount 5 Number of instalments Rate PMT Pv Nper 21.00% 1.75% $20.00 $368.24 22 Months

(b) If monthly payments are $65 each, it will take about 6 months to pay off the dues. Details as follows:

=NPER(C2,C3,C4*-1) в C D Rate PMT 1 Interest rate Yearly 2 Interest rate monthly 3 Monthly payments 4 Loan amount 5 Number of instalments 6 21.00% 1.75% $65.00 $368.24 6 Months Pv Nper

Part (c)  

$20 –a-month plan:

Number of payments= 22.417769

Total payment= $448.355388

$65 –a-month plan:

Number of payments= 6.018174

Total payment= $391.181310

Amount paid in $20-a-month plan in excess of $65-a-month plan= $448.355388-$391.181310

=$57.17