Interest compounded monthly problem

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Yes, that looks correct. In summary, Bob's credit card balance of $2000 with 24% interest compounded monthly can be paid off in 3 years with monthly payments of $78.47. However, if he only pays the minimum monthly payment of $25, his debt will be $2779.92 after 3 years.
  • #1
CountNumberla
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Hi again!

Bob's credit card balance is $2000. Credit company charges 24% interest compounded monthly.

1) Amortize monthly payments to pay off in 3 years
I'm not sure how to write the equations on the board, but I get $78.47

2) If Bob only pays $25 monthly minimum, what will his debt be in 3 years?
No ideas...
 
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  • #2


CountNumberla said:
Hi again!

Bob's credit card balance is $2000. Credit company charges 24% interest compounded monthly.

1) Amortize monthly payments to pay off in 3 years
I'm not sure how to write the equations on the board, but I get $78.47

2) If Bob only pays $25 monthly minimum, what will his debt be in 3 years?
No ideas...

You need to show us the equations you used to work out part 1. We do not do your homework for you here on the PF.

What are the Relevant Equations for this type of calculation. The Homework Help Template that you deleted in making your post ask for them.
 
  • #3


I understand, if you see my other post, I AM doing the work myself.

Here's the equation I used:

2000(1 + .24/12)^36 = X [(1 + .24/12)^36 - 1] / (.24/12)

Im not sure what other equations to use for the 2nd problem.

thanks!
 
  • #4


CountNumberla said:
I understand, if you see my other post, I AM doing the work myself.

Here's the equation I used:

2000(1 + .24/12)^36 = X [(1 + .24/12)^36 - 1] / (.24/12)

Im not sure what other equations to use for the 2nd problem.

thanks!

Yes, I did check your other post after seeing this one. Thanks for posting your work on #1. It seems like #2 is a similar extension of the same technique, but he is just not paying off enough to pay it down. Can you take a cut at an equation for #2?
 
  • #5


I got it thanks!

2000(1 + .24/12)^36 = $4079.77

25[(1 + .24/12)^36 - 1] / (.24/12) = $1299.86

Therefore 4079.77 - 1299.86 = $2779.92

correct?
 

Related to Interest compounded monthly problem

1. What is compound interest and how is it calculated?

Compound interest is the interest earned on both the initial principal and the accumulated interest from previous periods. It is calculated by multiplying the principal amount by the annual interest rate, dividing it by the number of compounding periods in a year, and then adding that amount to the principal. This process is repeated for every compounding period, resulting in a higher total amount of interest earned compared to simple interest.

2. How is interest compounded monthly different from other compounding periods?

Interest compounded monthly means that the interest is calculated and added to the principal every month. This results in a higher frequency of compounding compared to other periods, such as quarterly or annually. This also means that the total amount of interest earned will be higher since the interest is being added more frequently.

3. What is the formula for calculating monthly compounded interest?

The formula for calculating monthly compounded interest is A = P(1 + r/n)^nt, where A is the total amount after t years, P is the principal amount, r is the annual interest rate, n is the number of compounding periods in a year (12 for monthly), and t is the number of years.

4. How does compounding affect the total amount of interest earned?

Compounding has a significant impact on the total amount of interest earned. The more frequent the compounding periods, the higher the total amount of interest earned will be. This is because the interest is being added to the principal more frequently, resulting in a larger base amount to calculate interest on for the next period.

5. How can I use the concept of compound interest to my advantage?

Compound interest can be a powerful tool for growing your savings over time. By investing in an account with a high interest rate and compounding frequency, you can earn more interest on your initial investment. It is important to start saving and investing early to take advantage of the compounding effect and maximize your returns over time.

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