Question

11. Calculating minimum payment. You have a credit card with an APR of 36%. The minimum payment is 10% of the balance. Suppose you have a balance of $800. You decide to stop charging and make only the minimum payment. The initial payment will be 10% of $800, or $80. Calculate the minimum payment for the next two months. (Be sure to take into account the finance charges.)

Answer 1

Answer: Minimum payment for first month Minimum payment for second month $74.16 $68.75 Workings: Initial balance in credit card Less: Minimum payment made initially Balance outstanding after initial minimum payment Add: Finance charges for first month Balance outstanding for first month Less: Minimum payment for first month Balance outstanding after first month payment Add: Finance charges for first month Balance outstanding for second month Less: Minimum payment for second month Balance outstanding after second month payment $800 $80 ($800 x 10%] $720 $21.60 ($720 x 36% / 12] $741.60 ($720 + $ 21.6] $74.16 ($741.6 x 10%] $667.44 ($741.6 - $74.16] $20.02 ($667.44 x 36% / 12] $687.46 ($667.44 + $20.02] $68.75 ($687.4632 x 10%] $618.72 ($687.46 - $68.75]