You owe $5,000 on your credit card and you can pay the following monthly payments: Month 1 2 3 4 5 6 7 8
Payment 500 550 600 650 700 750 800 850
IF the credit card company charges an interest rate of 1.5% per month, is this enough to pay off your credit card, and if so, by how much?
A. No, this cash flow falls short of paying off the credit card.
B. Yes, this cash flow exceeds the balance by $320.
C. Yes, this cash flow will pay off the credit card with $23.75 remaining.
D. No, this will only pay off $4,793.63 of the credit card.

C. Yes, this cash flow will pay off the credit card with $23.75 remaining.

Explanation:

Calculation for how much will be enough to pay off your credit card

First step will be to use financial calculator to find the Net Present Value (NPV) of the payment amount from 1 month which is 500 to 8 month which is 850.

Hence,

NPV=$5,023.75

Now let calculate how much will be enough to pay off your credit card

Credit card pay off Amount =$5,023.75-$5,000

Credit card pay off Amount=$23.75

Therefore YES it will be enough to pay off the credit card and the amount that will be enough to pay off your credit card will be $23.75.

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