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See attachment--this is an advanced corporate finance question Your Christmas ski vacation was great, but it unfortunately ran a bit over budget. All is not
See attachment--this is an advanced corporate finance question
Your Christmas ski vacation was great, but it unfortunately ran a bit over budget. All is not lost, because you just received an offer in the mail to transfer your $12,300 balance from your current credit card, which charges an annual rate of 20.1 percent, to a new credit card charging a rate of 10.7 percent. How much faster could you pay the loan off by making your planned monthly payments of $240 with the new card? (Do not round intermediate calculations and round your final answer to 2 decimal places (e.g., 32.16).) Number of months What if there was a 2 percent fee charged on any balances transferred? (Do not round intermediate calculations and round your final answer to 2 decimal places (e.g., 32.16).) Number of months Solution (1): Amount transferred from current credit card to new credit card is 12,300 The interest rate of new card is 10.7% with a monthly payment of $240 Monthly rate of interest = Annual rate of interest/12 =10.7%/12 0.89% Nper =NPER(0.89%,-240,12300,0) = 68.74 Therefore it would take 68.74 months to clear new credit card balance. Solution (2): If additional 2% fees is charged New credit card balance = $12,300 +2% of 12,300 = $ 12,546.00 Nper =NPER(0.89%,-240,12546,0) 70.64 Therefore it would take 70.64 months to clear new credit card balance alongwith the fee. Your Christmas ski vacation was great, but it unfortunately ran a bit over budget. All is not lost, because you just received an offer in the mail to transfer your $12,300 balance from your current credit card, which charges an annual rate of 20.1 percent, to a new credit card charging a rate of 10.7 percent. How much faster could you pay the loan off by making your planned monthly payments of $240 with the new card? (Do not round intermediate calculations and round your final answer to 2 decimal places (e.g., 32.16).) Number of months 68.78 What if there was a 2 percent fee charged on any balances transferred? (Do not round intermediate calculations and round your final answer to 2 decimal places (e.g., 32.16).) Number of months 70.70 Solution (1): Amount transferred from current credit card to new credit card is 12,300 The interest rate of new card is 10.7% with a monthly payment of $240 Monthly rate of interest = Annual rate of interest/12 =10.7%/12 0.89% Nper =NPER(.89%,-240,12300,0) = 68.78 Therefore it would take 68.78 months to clear new credit card balance. Solution (2): If additional 2% fees is charged New credit card balance = $12,300 +2% of 12,300 = $ 12,546.00 Nper =NPER(0.89%,-240,12546,0) 70.70 Therefore it would take 70.70 months to clear new credit card balance alongwith the fee. Solution (1): Amount transferred from current credit card to new credit card is 12,300 The interest rate of new card is 10.7% with a monthly payment of $240 Old Credit Card Amount = Interest = Monthly rate of interest = Annual rate of interest/12 =10.7%/12 0.89% Nper =NPER(.89%,-240,12300,0) = 68.78 Monthly Interest = Therefore it would take 68.78 months to clear new credit card balance. How much faster to pay off the loan = Time with current annual rate/Time w = 117.69/68.78 1.71 times faster Solution (2): If additional 2% fees is charged New credit card balance = $12,300 +2% of 12,300 = $ 12,546.00 Nper =NPER(0.89%,-240,12546,0) 70.70 Therefore it would take 70.70 months to clear new credit card balance alongwith the fee. Nper = 12300 20.10% 1.68% =NPER(1.68%,-240,12300,0) 117.69 months Case 2: If an additional fees of 2% is charged How much faster to pay off the loan = Time with current annual rate/Time w = 117.69/70.70 1.66 times faster Time with new annual rate Time with new annual rateStep by Step Solution
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