Question

Marcia has two credit cards and would like to consolidate the two balances into one balance on the card with the lower interest rate. The table below shows the information about the two credit cards Marcia currently uses.
Card A
Card B
Amount
$1,389.47
$1,065.32
APR
16%
12%
Monthly Payment
$39.38
$28.05

After 4 years, approximately how much will Marcia have saved in interest by consolidating the two balances?
a.
$1,890.24
b.
$133.92
c.
$543.84
d.
$1,346.40

ANSWER IS B

Answer 1

Answer:

Option B ,$133.92  is correct

Step-by-step explanation:

By consolidating both balances in Card B,APR of 12% would apply to funds in card A as well

Let us approach the question by solving for monthly payment of  Card A using   12% APR as follows while making use of excel pmt formula:

=pmt(rate,nper,-pv,fv)

rate is the monthly rate on the card which is 12%/12=1%

nper is the number of months of payment which is 12 months * 4 years=48

pv is the current balance in the card which is $1,389.47

fv is the total amount of monthly repayment which is taken as zero

=pmt(1%,48,-1389.47,0)=$ 36.59  

Using 16% monthly payment is $39.38  which is given already

Total monthly payments for 16%=$39.38*48=$1890.24

Total monthly payments for 12% APR=$36.59*48=$1756.32

savings in total repayments=savings in interest=$1890.24 -$1756.32 =$133.92