Your Christmas ski vacation was great, but it unfortunately ran a bit over budge

Question

Your Christmas ski vacation was great, but it unfortunately ran a bit over budget. All is not lost: You just received an offer in the mail to transfer your $13,300 balance from your current credit card, which charges an annual rate of 21.1 percent, to a new credit card charging a rate of 11.7 percent. a. How much faster could you pay the loan off by making your planned monthly payments of $290 with the new card? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. What if there was a 3 percent fee charged on any balances transferred? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Number of months a. b. Number of months with 3 percent fee

Explanation / Answer

a. Number of Months

1. Number of Months required to payoff using Old Loan interest rate of 21.1%

By using excel function NPER(21.1%/12, -290, 13300) = 94.20 Months

2. Number of Months required to payoff using New Loan interest rate of 11.7%

By using excel function NPER(11.7%/12, -290, 13300) = 61.08 Months

Number of Months Fastened = 94.20 - 61.08 = 33.12 Months

b. Number of months with 3% fee

1. Number of Months required to payoff using Old Loan interest rate of 21.1%

By using excel function NPER(21.1%/12, -290, 13300) = 94.20 Months

2. Number of Months required to payoff using New Loan interest rate of 11.7% with 3% fee = Now th eloan becomes $13699 (13300 * 1.03)

By using excel function NPER(11.7%/12, -290, 13699) = 63.62 Months

Number of Months Fastened = 94.20 - 61.08 = 30.59 Months

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