Question

Jordan’s credit card has an APR of 10.59%, compounded monthly. He is required to make a minimum payment of 3.96% of his current balance every month.

At the beginning of March, Jordan had a balance of $628.16 on his credit card. The following table shows his credit card purchases over the next few months.

Month
Cost ($)
March
50.81
March
48.04
April
77.36
April
32.40
April
49.20
May
25.79
May
79.39
May
79.08

If Jordan makes only the minimum monthly payments in March, April, and May, what will his balance be after he makes the minimum payment for May? (Assume that interest is compounded before the monthly payment is made, and that the monthly payment is applied at the end of the month. Round all dollar values to the nearest cent.)
a.
$1,094.10
b.
$988.97
c.
$967.60
d.
$1,070.23


Please select the best answer from the choices provided

A
B
C
D

Answer 1

Monthly rate = 0.1059/12 = 0.008825 (1.008825 factor). Round dollar amounts to cents at each step.

March
- Start: 628.16; March purchases = 50.81 + 48.04 = 98.85
- Pre-interest balance = 628.16 + 98.85 = 727.01
- After interest = 727.01 × 1.008825 = 733.43 (rounded)
- Minimum payment = 0.0396 × 733.43 = 29.04
- End of March balance = 733.43 − 29.04 = 704.39

April
- Add purchases = 77.36 + 32.40 + 49.20 = 158.96
- Pre-interest = 704.39 + 158.96 = 863.35
- After interest = 863.35 × 1.008825 = 870.97 (rounded)
- Payment = 0.0396 × 870.97 = 34.49
- End of April balance = 870.97 − 34.49 = 836.48

May
- Add purchases = 25.79 + 79.39 + 79.08 = 184.26
- Pre-interest = 836.48 + 184.26 = 1,020.74
- After interest = 1,020.74 × 1.008825 = 1,029.75 (rounded)
- Payment = 0.0396 × 1,029.75 = 40.78
- End of May balance = 1,029.75 − 40.78 = 988.97

Answer: B ($988.97).