The following question will test your skills of time value of money techniques applied to credit cards. Suppose you owe $10,000 on a credit card. The credit card has an APR1 of 18%. In the following questions we will assume you make NO additional charges on your credit card.

a. If you wish to pay of the balance in 5 years, how much should you pay monthly?

b. If you make the required payments calculated in a., at the end of the first year (just after you have made the 12th monthly payment), how much do you owe on the credit card?

c. If you make the required payments calculated in a., how much interest do you pay over the first year?

d. If you make the required payments calculated in a., how much interest do you pay over the five-years?

Appendix VI - Credit Card Minimum Payments The following text from NerdWallet explains the minimum payment on credit card bills (I have included this for students' information; there is no question asked). 'A minimum payment is exactly what it sounds like: It's the bare minimum you're contractually obligated to pay each billing cycle. If you don't pay at least the minimum by the due date, you could be hit with a late fee and penalty APR, or annual percentage rate. After 30 days without paying at least the minimum, your Did you know? account can be reported delinquent and your credit score could also take a hit. In the 1970s, minimum payments "The minimum is really useful if people are a little short equal to 5% of the outstanding balance were the norm. Since then, of income in a particular month -for example, when issuers have reduced the payments - they're in between jobs or they recently had a large in part because lower minimum expense," says Nessa Feddis, senior vice president for payments created more profitable consumer protection and payments at the industry accounts group American Bankers Association. "But it's not something that should be routine." In part, that's because the minimum is usually so low that it just barely exceeds the interest charges that accrue each month on your balance. When you're just paying the minimum, it could take years - in some cases, decades - to pay off your full balance. Paying only the minimum could also send up red flags to other lenders, suggesting that you struggle to repay debts, Feddis adds. Assuming you owe enough that your calculated minimum payment exceeds your issuer's fixed floor rate, your minimum payment will probably be calculated in one of two ways: On some cards, issuers use a flat percentage - typically 2% - of your statement balance to determine your minimum. If your balance (including interest and fees) were $10,000, for example, you'd owe a minimum of $200 using this calculation: Statement Balance x flat percentage = $10,000 x 2% = $200, the minimum payment. This method is most often used by credit unions and subprime banks, according to a 2015 study by the Consumer Financial Protection Bureau. Some cards charge a lower flat percentage of your statement balance, excluding fees and interest - say, 1% - and then tack on all the interest charges and fees accrued that cycle, giving the name of this method percentage + interest + fees. Suppose your balance (before interest and fees) is $10,000 and you've accrued $160 in interest and $38 in late fees this month. If your issuer calculates your minimum as 1% of the balance plus interest and fees, you'd have a minimum payment of $10,000 x 1% + $160 + $38 = $298. This method is most commonly used by large issuers, according to the CFPB's findings