Part I

You have received your monthly credit card statement and must now deal with the financial
realities of last month's birthday celebration. While your birthday was deserving of a celebration,
dealing with the $1500 in credit card charges will require some planning.

Your credit card statement lists the APR (Annual Percentage Rate) for your balance to be
13.6% This is the yearly interest rate the credit card company uses in calculating interest due on
your balance.
APR= 0.136
The credit card company compounds interest monthly.
Your monthly interest rate on credit card charges will be:
i=APR/12 = 0.01133
The minimum payment required by your credit card company is
$25 per month. Assuming that you do not make any new charges to your account, you will
answer the following questions to help you determine the best plan for paying off this credit card
debt.
a) To begin with, let's check out the plan of only paying the minimum amount due each month.
To get a feel for how this will affect the balance, you'll compute the interest and the balance on
the first few months assuming a the minimum monthly payment of
$25.

Number Interest New Balance

1 $17.00 $1492.00

2 $16.90 $1483.90

3 $16.81 $1475.71

4 $16.72 $1467.43

5 $16.63 $1459.06

6 $16.53 $1450.59

7 $16.44 $1442.03

8 $16.34 $1433.37

9 $16.24 $1424.61

10 $16.14 $1415.75

11 $16.04 $1406.79

12 $15.94 $1397.73
b) How much of the original balance has been paid off by the end of the year?
$102.27

c) What is the total amount that has been paid to the credit card company at the end of the first
year? (this is just your minimum payment per month times 12 months.)

$300

d) What percentage of what you paid went to paying the interest? Express your answer as a
percentage and round it to one decimal place.

65.9%

Part II

P= D*i/1-(1+i)^-M

a) Using this formula, solve for M. Use either the Common log,
log, or the Natural log, ln. Starting with `"M=", enter the whole formula.

M= ln(-D*i/P + 1)/-ln(1+i)

D= $1500

b) Determine the number of months it will take to pay off the credit card debt with minimum
monthly payments of $25. You'll need the monthly interest rate from Part I: i=0.01133. Round
the number of months to two decimal places.

Number of months: 101.08

c) Number of years: 8.4

d) What is the total amount paid to the credit card company, rounded to the nearest dollar?
$2527
e) How much of the total paid goes toward interest?
$1027

Part III

a) Determine the number of months it will take to pay off the $1500 credit card debt with a
monthly payment of $50. Round the number of months to two decimal places.
Number of months: 36.87
b) Number of years: 3.1

c) What is the total amount paid to the credit card company, rounded to the nearest dollar?
$1843.5
d) How much of the total paid goes toward interest?
$343.60

Part IV

a) Determine the number of months it will take to pay off the $1500 credit card debt with a
monthly payment of $75. Round the number of months to two decimal places.

Number of months: 22.8

b) Number of years: 1.9

c) What is the total amount paid to the credit card company, rounded to the nearest dollar?
$1710

d) How much of the total paid goes toward interest?

$210

Part V

a) Using the formula for calculating the payment, P, determine how large of a payment is
required to pay off a debt in 12 months. Use the same monthly interest rate i=0.01133
and the same debt amount $1500
from the first question.
P= $134.40
b) What is the total amount paid to the credit card company?
$1612.7
c) How much of the total goes toward interest?
$112.7