Jill has a balance of $5,000 on one credit card with an annual interest rate of 10%. To pay off the $5,000 in three years, Jill
will have to make a minimum payment of $161.34 per month. On a second credit card, Jill has a balance of $5,000 with an annual interest rate of 5%. To pay off the $5,000 in three years, Jill will have to make a minimum payment of $149.85 per month. How much more does Jill have to pay when the interest rate changes from 5% to 10% on a $5000 balance?
First credit card: P = $5,000 i = 10% n = 3 years A = $161.34/month
Second credit card:
P = $5,000 i = 5% n = 3 years A = $149.85/month
If the interest rate of the other card will increase from 5% to 10%, she will have to pay an additional of:
$161.34 - $149.85 / month = $13.49 more per month
Therefore, Jill will have to pay $322.68/month instead of $311.19/month with a monthly difference of $13.49 per month, for three years, if the interest rate changes from 5% to 10% on a $5,000 balance.
