Question

A bank recently announced an "instant cash" plan for holders of its bank credit cards. A cardholder may receive cash from the bank up to a preset limit (about $500). There is a special charge of the minimum of $15 or 4% made at the time the "instant cash" is sent to the cardholders. Each month the bank charges 11% on the unpaid balance. The monthly payment, including interest, may be as little as $10. Assume the cardholder makes the minimum monthly pay- ment of $10. How many months are required to repay $150 of instant cash? How much interest is paid?

Answer 1

Instant cash =$150

4% of 150=4%*150=$6

Hence $15 charge will be applicable.

Total outstanding =150+15=$165

A=$10

R=1.5%

Hence Pv= A*(1-(1+r)^-n)/r where n is the no of months

Or, 165=10*(1-(1+1.5%)^-n/1.5%

Or, 165*0.015/10=1-1.015^-n

Or, 1.015^-n=1-0.2475

Or, -nlog 1.015=log0.7525

Or, -n*0.0065=-0.1235

Or, n=0.1235/0.0065

Or, n=19.10 months

Hence it will take 19.1 months to repay

Total payment=19.1*10=191

Hence interest =191-165=$26