Assume that you have a balance of $4500 on your Visa credit card and that you make no more charges. Assume that Visa charges 21% APR and that each month you make only the minimum payment of 2.5% of the balance.

What will the balance be after 2 years?

(Round your answer to 2 decimal places.)



Answer :

Certainly! Let's go through the problem step by step.

### Given:
1. Initial balance on the Visa credit card: [tex]$4500 2. Annual Percentage Rate (APR): 21% 3. Minimum payment rate: 2.5% of the current balance every month 4. Time period in question: 2 years (which is 24 months) ### Step-by-Step Solution: 1. Convert Annual Percentage Rate (APR) to Monthly Interest Rate: - The monthly interest rate is the APR divided by 12. - Monthly interest rate = \( \frac{21\%}{12} \) = 1.75% per month 2. Start with the initial balance: $[/tex]4500.

3. Iterate through each month, calculating the interest, adding the interest to the balance, computing the minimum payment, and then subtracting the minimum payment from the balance.

So, let's begin:
- Month 1:
- Compute interest for the month: [tex]\( \text{Interest} = \text{Balance} \times \text{Monthly Interest Rate} \)[/tex].
- Interest = [tex]$4500 \times 0.0175 = $[/tex]78.75.
- Add interest to the balance:
- New balance = [tex]$4500 + $[/tex]78.75 = [tex]$4578.75. - Calculate minimum payment: \( \text{Minimum Payment} = \text{New Balance} \times \text{Minimum Payment Rate} \). - Minimum Payment = $[/tex]4578.75 \times 0.025 = [tex]$114.47. - Subtract minimum payment from the balance: - New balance = $[/tex]4578.75 - [tex]$114.47 = $[/tex]4464.28.

- Repeat for each subsequent month for a total of 24 months.

At the end of 24 months, the balance will be:

### Final Balance:
The final balance after applying the interest calculations and minimum payments for 24 months is approximately $3716.63.

This is the rounded balance to 2 decimal places.