How much will Kimberly's minimum monthly payment increase if she still wants to pay off her credit card in 16 months?

Question

Kimberly has a credit card with a 19% APR and a balance of $4,350. With her current monthly payment, Kimberly will be able to pay off the credit card in a mere 16 months. But when Kimberly's car breaks down, she is forced to charge an additional $1,600 to her credit card. 

A.$100.000

B.$113.99

C.$309.90

D.$423.89

Answer 1

Answer: B

Since we are required to only compute the "increase" in the monthly payment and not the revised total monthly payment, we can disregard her existing balance and focus only on the new charge of $1600. This new charge would require an additional payment of $113.99 per month.

Calculation using a financial calculator:

monthly rate = 19%/12

number of periods (in months) = 16

PV = -$1600

FV = 0 (because the loan is going to be fully paid at the end of the 16 month period)

Calcuation using Excel:

=PMT(19%/12,16,-1600,0)

Manual calculation:

(r*PV)/(1-(1+r)^(-n)) where r is the rate per month (19%/12) and n is the number of months (16).