Question
5.30 You have credit card debt of $25,000 that has an APR (monthly compounding) of 15%. Each month you pay the minimum monthly payment. You
5.30
| You have credit card debt of $25,000 that has an APR (monthly compounding) of 15%. Each month you pay the minimum monthly payment. You are required to pay only the outstanding interest. You have received an offer in the mail for an otherwise identical credit card with an APR of 12%. After considering all your alternatives, you decide to switch cards, roll over the outstanding balance on the old card into the new card, and borrow additional money as well (assuming that the new card has sufficient debt capacity). How much can you borrow today on the new card without changing the minimum monthly payment you will be required to pay?
Complete the steps below using cell references to given data or previous calculations. In some cases, a simple cell reference is all you need. To copy/paste a formula across a row or down a column, an absolute cell reference or a mixed cell reference may be preferred. If a specific Excel function is to be used, the directions will specify the use of that function. Do not type in numerical data into a cell or function. Instead, make a reference to the cell in which the data is found. Make your computations only in the blue cells highlighted below. In all cases, unless otherwise directed, use the earliest appearance of the data in your formulas, usually the Given Data section. | ||||
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| Credit card debt | $ 25,000 |
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| APR (1) | 15% |
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| APR (2) | 12% |
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| Periods per year | 12 |
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| Monthly interest rate (1) |
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| Interest payment |
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| Monthly interest rate (2) |
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| PV of interest payments |
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| Additional borrowing |
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| 1 | In cell D11, by using cell references, calculate the monthly interest rate of the current credit card (1 pt.). | |||
| 2 | In cell D12, by using cell references, calculate the interest payment on the current credit card (1 pt.). Note: The output of the expression or function you typed in this cell is expected as a positive number. | |||
| 3 | In cell D13, by using cell references, calculate the monthly interest rate of the new credit card (1 pt.). | |||
| 4 | In cell D14, by using cell references, calculate the present value of the interest payments (1 pt.). Notes: (1) The output of the expression you typed in this cell is expected as a positive number. (2) Use the Present Value of a Perpetuity equation from chapter 4. | |||
| 5 | In cell D15, by using cell references, calculate the additional borrowing that you can make by switching to the new credit card (1 pt.). | |||
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