what is his monthly payment, assuming he makes no additional purchases on this card?

Question

Jason has $3,519.85 in credit card debt. The annual interest rate on the unpaid balance is 19.4% compounded monthly. If Jason wants to pay off his credit card debt in 2 years,what is his monthly payment, assuming he makes no additional purchases on this card? (Suggestion: Use the formula for the present value of an ordinary annuity. Round your answer to the nearest cent.)

The answer is not 178.11 or $217.76 or $708.67, or $178.75

Answer 1

To calculate the amount, you would need to pay each month you need to know 3 factors.

·      The loan balance.

·      The loan period in months.

·      The compounded monthly interest rate.

The loan balance is $3519.85. The loan period is 2 years or 24 months. The annual interest rate is 19.4%.  To get the monthly compounded rate you would divide 19.4%/12 =0.016166667

The formula for calculating the monthly payment is:

P = a/((1+r) ^n-1) * (r)*(((1+r)^n)



Where P =payment

a= principal amount ($3519.85)

r= compounded rate (016166667)

n= number of periods (months) 24

The equation would be  P= $3519.85/((1+.016166667)^24-1) * (.016166667)*(((1+.016166667)^24)

Note: ^24= to the 24^th power. If it was 36 months, it would be to the 36^th power.

Therefore  you have P= $3519/(1.469463054 -1) * (.016166667) *(1.469463054)

                                           P= $7497.608106 * 0.023756319

                                           P=   $178.1155727  or    $178,12 (rounded)

To pay off the balance of $3519,85 in 2 years you would need to make monthly payments of $178.12 assuming you did not add to the outstanding balance.