A person borrowed $ 4000 on a bank credit card at a nominal rate of 24\% per y

texelaare

texelaare

Answered question

2021-08-11

A person borrowed $4000 on a bank credit card at a nominal rate of 24% per year, which is actually charged a rate of 2% per month.
a) what is the effective annual percentage rate (Effective APR) for the card?
b) Assume that the person does not place any additional charges on the card and pays the bank $300 each month to pay off the loan. Let B(n) be the balance owed on the card after n months. Find explicit formula for B(n).
c) How long will be reguired to pay off the debt?

Answer & Explanation

Cullen

Cullen

Skilled2021-08-12Added 89 answers

For part (a) it is required to determine the effective annual percentage rate.
Effective APR=(1+0.02)121
=0.2682
Effective APR=26.82%
For part (b)
It is required to determine the explicit formula for B(n):
B(n)=4000(1.02)n[300(1.02)n1+300(1.02)n2++300]
=4000(1.02)n300[1.02n11.021]
=4000(1.02)n15000(1.02)n+15000
B(n)=1500011000(1.02)n
For part (c)
It is required to determine how long it will take to pay off the debt.
B(n)=0
1500011000(1.02)n=0
15000=11000(1.02)n
1511=(1.02)n
ln(1511)=nln(1.02)
n=15.66

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