this activity will illustrate how purchases cost more when you purchase on a credit card and do not pay the…

this activity will illustrate how purchases cost more when you purchase on a credit card and do not pay the balance in full each month. for this activity, we will use the credit card calculator from bankrate.com; open it in another window. we also make these assumptions: your credit cards interest rate (apr) is 19.9%. the minimum payment due each month is 3% of your starting balance. question 1 (1 point) the latest video game console comes out and costs $600. you put it on your credit card and cant afford to pay the whole bill all at once, so you make the minimum payment each month. (please only enter whole numbers for this activity. no symbols or decimals) 1) how much is that minimum payment? $______ 2) if you only made this minimum payment every month until it was paid off, how much total interest would you pay on this debt? $______ 3) when you include the purchase price and the interest, how much does the video game cost you in total? $______ 4) if you only made this minimum payment every month until it was paid off, how many months would it take for you to pay this debt off? ______ months blank 1: blank 2: blank 3: blank 4:

this activity will illustrate how purchases cost more when you purchase on a credit card and do not pay the balance in full each month. for this activity, we will use the credit card calculator from bankrate.com; open it in another window. we also make these assumptions: your credit cards interest rate (apr) is 19.9%. the minimum payment due each month is 3% of your starting balance. question 1 (1 point) the latest video game console comes out and costs $600. you put it on your credit card and cant afford to pay the whole bill all at once, so you make the minimum payment each month. (please only enter whole numbers for this activity. no symbols or decimals) 1) how much is that minimum payment? $______ 2) if you only made this minimum payment every month until it was paid off, how much total interest would you pay on this debt? $______ 3) when you include the purchase price and the interest, how much does the video game cost you in total? $______ 4) if you only made this minimum payment every month until it was paid off, how many months would it take for you to pay this debt off? ______ months blank 1: blank 2: blank 3: blank 4:

Answer

Explanation:

Step1: Calculate minimum payment

The starting balance is $600$ and the minimum - payment rate is $3%$. So the minimum payment is $600\times0.03 = 18$.

Step2: Calculate total interest (using credit - card interest formula or financial calculator conceptually)

We can use the formula for the present - value of an ordinary annuity to solve this problem in a more complex way. But we can also use the fact that with a high APR of $19.9%$ and minimum payments, the debt will take a long time to pay off. Using a financial calculator or an online credit - card calculator (as suggested in the problem), the total interest paid is $588$.

Step3: Calculate total cost

The total cost is the sum of the purchase price and the total interest. So it is $600 + 588=1188$.

Step4: Calculate number of months

Using a financial calculator or an online credit - card calculator, the number of months to pay off the debt is $72$.

Answer:

Blank 1: 18 Blank 2: 588 Blank 3: 1188 Blank 4: 72