Question

Emilio’s accountant told him that if he continues to pay $50 a month on his credit card, it will take him 42 years to pay off his current balance (assuming the interest rate doesn’t change and assuming he doesn’t charge anything else on that card). His credit card interest rate is 18.99%. What is his balance?

Answer 1

$3,158.40

Step-by-step explanation:

The current balance on his credit card is the present value of $50 payable per month over 42-year period as shown below:

PV=monthly payment*(1-(1+r)^-n/r

PV=the unknown

montly paymet=$50

r=monthly interest rate= 18.99%/12=0.015825

n=number of monthly payments=42*12=504

PV=$50*(1-(1+0.015825)^-504/0.015825

PV=$50*(1-(1.015825)^-504/0.015825

PV=$50*(1-0.000365827)/0.015825

PV=$50*0.999634173/0.015825

PV=$3,158.40