Tom just received a Visa credit card with an Ire per year compounded monthly int
ID: 2642622 • Letter: T
Question
Tom just received a Visa credit card with an Ire per year compounded monthly interest rate. Ile plans to use the card starting nest month, spending at a rate of $1.000 per month and paying none of the balance or accrued interest. One month after he stops spending. Tom is willing to start payments of interest only on the total credit card balance at the rate of $500 per month for the rest of his life. Use the capitalized worth method to determine how many months Tom can spend before he must start making the $500 per month payments. Assume the payments can he made for mans months, i.e., forever, and the credit card has a sufficiently high spending limit.Explanation / Answer
Capitalized value (Outstanding credit card balance) = 500 / (.18/12) = 33,333
Number of months Tom can spend before making payment (Using excel formula):
=NPER(0.18/12,-1000,0,33333)
= 27.33 months