Question

With a beginning balance of $2500 and no additional charges, there is no grace-period, you will just pay the minimum payment each month for the next year. The APR is 24.99% and the minimum payment each month is 8% of the balance. Determine the finance charge, new balance, and minimum payment required for each of the next year, and the starting balance for month 13:
a. What is the total of the minimum payments?
b. What is the total of the finance charges?
c. How much does the starting balance decrease after one year of payments?
d. The total of your finance charges is what percent of your total payments?
e. Explain why making the minimum payment all the time is great for the credit card company, but not so great for the user.

Answer 1

Answer:

a = $31.23 per month

b = $20.83 per month

c = 249.98 = $249.98 interest charges

                   = $624-249.98 = 374.02 profit part decrease 8% inc.                  

d = 35.35%

e = Answer is in the name; basic payment is a contract which means whilst account remains open charges are requested without fail. Should balance be less or on zero, charges are still applied.

Step-by-step explanation:

2500 x 1.2499 = interest only for start month 13 =3124.75

3124.75/ 100 x 1.08   = 8% of this = 249.98 each year.

We only have to divide each by 12 to work out monthly individual charges and subtract to find out payments.

3124.75 - 249.98 = 2874.77 = Total after charges each year.

249.98/12 = 20.83 = monthly charges.

3124.75- 2500 = 624.75 payments each year

624.75/12 = 52.06 month 1 payment before charge

52.06-20.83 =31.23 total minimum payment

2500 + 249.98

Percentage = 200:600 = 1/3 33% + (comparing to ratio 10:25 closer to 40%)

We find ratio 200:600= 33.33 + 49.995/24.75 = 2.02

33+2.02 = 35.35%