9
QuizMultiple Choice

Paying Off Debt

Question 9 • Personal Finance - EL3403

Cesar is excited that he only has 12 months left before he pays off his credit card completely. His current balance is $3,750 and his APR is 17.5%. But when he is involved in a car accident, he is forced to use his credit card to pay a $1,000 deductible to get his car fixed. How much will Cesar’s minimum monthly payment increase if he still wants to pay off his credit card in 12 months?

Answer
A
$83.33
B
$91.44
C
$342.91
D
$434.35

Explanation

To pay off the additional $1,000 in 12 months, use the monthly rate of 17.5% ÷ 12 and the 12-month loan-payment formula. The added monthly payment is about $1,000 × 0.014583 ÷ [1 − (1 + 0.014583)⁻¹²] = $91.44. So the minimum monthly payment must increase by $91.44, choice b.

AI-written and checked against the verified answer.

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