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Fundamentals of Financial Manageme...

14th Edition
Eugene F. Brigham + 1 other
ISBN: 9781285867977

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BuyFindarrow_forward

Fundamentals of Financial Manageme...

14th Edition
Eugene F. Brigham + 1 other
ISBN: 9781285867977
Textbook Problem

PAYING OFF CREDIT CARDS Simon recently received a credit card with an 18% nominal interest rate. With the card, he purchased an Apple iPhone 6 for $372.71. The minimum payment on the card is only $10 per month.

  1. a. If Simon makes the minimum monthly payment and makes no other charges, how many months will it be before he pays off the card? Round to the nearest month.
  2. b. If Simon makes monthly payments of $35, how many months will it be before he pays off the debt? Round to the nearest month.
  3. c. How much more in total payments will Simon make under the $10-a-month plan than under the $35-a-month plan? Make sure you use three decimal places for N.

a.

Summary Introduction

To determine: Thenumber of months before which the credit card would be paid off.

Nominal rate of interest:

The nominal rate of interest is the annual rate, which is charged on the credit cards. The nominal annual rate is converted into effective annual rate to compare the rates of two different banks.

Explanation

Given,

The nominal interest rate is 18%.

The credit card purchase amount is $372.71.

The minimum payment on the card is $10 per month.

Calculation of the number of months,

The number of months is calculated using excel ‘NPER’ function...

b.

Summary Introduction

To determine: The months before the person pays off the debt.

Nominal rate of interest:

The nominal rate of interest is the annual rate, which is charged on the credit cards. The nominal annual rate is converted into effective annual rate to compare the rates of two different banks.

c.

Summary Introduction

To determine: The amount more in the total payments under $10-a-month plan than a $35-a-month plan.

Nominal rate of interest:

The nominal rate of interest is the annual rate, which is charged on the credit cards. The nominal annual rate is converted into effective annual rate to compare the rates of two different banks.

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