1. You are broke and furnishing your first apartment after leaving the dorms (yeah!) You make a purchase for $7,500 on your credit card for all types of miscellaneous things you need. The credit card has an annual interest rate of 14.99%, the student rate you received when you were in college. If you pay the minimum payment of 2% per month (not less than $25),
a. What is your balance after 4 years (48 months), assuming you make no other purchases with your credit card?
Make a table in Excel that looks like: (you can copy and paste this - it will work)
|
Month
|
Credit card balance at beginning of month
|
Payment at end of month
|
Interest for month
|
Credit card balance at end of month
|
|
1
|
$7,500.00
|
=MAX(B2*0.02,25)
|
=B2*0.1499/12
|
=B2-C2+D2
|
|
2
|
=E2
|
=MAX(B3*0.02,25)
|
=B3*0.1499/12
|
=B3-C3+D3
|
and continue the pattern. The Excel function MAX will calculate which value is the greater option between minimum payment of 2% or $25.
b. If you only paid the minimum each month (and didn't make any additional purchases!), how long would it take to pay off the balance?
c. How much interest would you pay altogether? (Sum the total interest paid EACH month from part b)
2. Assume that you have a balance on a store credit card (like a Best Buy or Macy's) of $5,000 that carries an annual percentage rate of 21%. You start making monthly payments of $200, but at the same time you charge an additional $125 per month (assume that this charge is made at the end of the month and interest is calculated on the balance before the charge is added).
Make a table that shows month, beginning balance, payment, interest, charge amount, and end balance. Make sure you change the INTEREST column above to be (B2*.21)/12
a. Assuming that the scenario above doesn't change, how long will it take to pay off the credit card debt?
b. How much interest would you pay in the end?