Like many college students, Tanya applied for and got a credit card that has an annual percentage rate (APR) of 12%. The first thing she did was buy a new DVD player for $400. At the end of the month, her credit card statement said she only needed to make a minimum monthly payment of $15. Assume Tanya makes her payment when she sees her statement at the end of each month. If Tanya doesn't charge anything else and only makes the minimum monthly payments, approximately how many months would it take her to completely pay off the DVD player? Assume that the credit card company compounds interest at the end of each month.

Question

Business

Helen

14 July, 02:37

Like many college students, Tanya applied for and got a credit card that has an annual percentage rate (APR) of 12%. The first thing she did was buy a new DVD player for $400. At the end of the month, her credit card statement said she only needed to make a minimum monthly payment of $15. Assume Tanya makes her payment when she sees her statement at the end of each month. If Tanya doesn't charge anything else and only makes the minimum monthly payments, approximately how many months would it take her to completely pay off the DVD player? Assume that the credit card company compounds interest at the end of each month.

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Answers (1)

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Lucy Dawson · Answer 1

The number of months it takes Tanya to pay back the DVD player is 30 months

Explanation:

The number of months Tanya takes to pay back the DVD player is calculated as shown below:

$15 * (1.0%, number of months) = $400

where monthly interest=12%/12months

Dividing both sides by $15 gives

*1%*number of months=26.66666667

Using the present value table 26.6666667 under 1% lies between 25.808 (30 months) and 29.409 (31 months), hence gives 26.6666667 30.2 months and approximately 30 months