Simon recently received a credit card with an 20% nominal interest rate. With th

Question

Simon recently received a credit card with an 20% nominal interest rate. With the card, he purchased a new stereo for $330.00. The minimum payment on the card is only $10 per month.
a. If he makes the minimum monthly payment and makes no other charges, how many months before he pays off the card?
b.How much more in total payments will he make under the $10-a-month plan than under the $30-a-month plan. Make sure to use 3 decimal places for N. Round your answer to the nearest cent.


*Please instruct how to derive answer via Financial Calculator! Thanks!

Explanation / Answer

p = x*(1 - (1+r)^-n)/r So: log(r*p/x)-1)/log(1+r)=n r = interest/12 p = principal x = payment A: log(((20%/12)*330/10)-1)/log(1+20%/12) = 48.31 ..or 49 months. B: log(((20%/12)*330/30)-1)/log(1+20%/12) = 12.253 ..or 13 months. He would pay for 36 months longer by paying only 10 dollars and it would cost him $116 more in interest.

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