Question

Julius currently pays the minimum monthly payment of $34.15 on his credit card, which has a balance of $1,289. His credit card has an APR of 20%. If Julius wants to pay off the balance in 12 months, determine the monthly payments he needs to make. Choose the following modification with the least cuts to his current expenses that will allow Julius to pay off his credit card balance in 12 months.

Income
Wages
$2,456.00
Expenses
Rent
$900.00

Utilities
$186.35

Food/Clothes
$298.00

Entertainment
$330.00

Car
$385.00

Credit Card
$34.15

Cell Phone
$89.49
Net Income

$233.01
a.
Julius can eliminate $31 from Entertainment and $55 from Food/Clothes.
b.
Julius can eliminate $80 from Entertainment and $60 from Food/Clothes.
c.
Julius can eliminate $18 from Entertainment and $32 from Food/Clothes.
d.
The minimum payment is enough to pay off the balance within 12 months.


Please select the best answer from the choices provided.

A
B
C
D
Mark this and return

Answer 1

Monthly rate = 0.20/12 = 0.0166667. Using the amortization formula

payment = r·PV / (1 − (1+r)^(−n)),

with PV = $1,289, r = 0.0166667, n = 12 gives
monthly payment ≈ $119.35.

He currently pays $34.15, so he needs an extra ≈ $119.35 − $34.15 = $85.20 per month.

Check choices for freed amounts:
a) $31 + $55 = $86 (just enough)
b) $80 + $60 = $140 (more than enough)
c) $18 + $32 = $50 (not enough)
d) false

The least cuts that work is choice a.

Answer: A