Calculator Problem – 2010-09-13

You have a credit card with an interest rate of 14.99% and a balance of $6700. If you paid $350 a month, how long would it take you to pay off your credit card?

(The answer will be posted with the new calculator problem in 2 weeks.  Or if you can’t wait that long, you can go to http://www.facebook.com/pages/Gary-Johnston-Seminars/111368472221424 for the answer.)

To find the answer to the 2010-08-30 calculator problem, we first need to find the future value of our $30,000 which is FV=1,584,825.92 (N=240, I=20, PV= -30,000, PMT=-0).  If we borrow another $30,000 and invest at 20% but pay 10%, we would net $250 a month ($30,000 * 10% = $3000 / 12 months).  If we add that $250 every month to the calculation, we would get FV=2,362,238.88 (N=240, I=20, PV= -30,000, PMT= -250).  Now that we future value, we can calculate the yield on our original investment.  I=22.30 (N=240, PV= -30,000, PMT=0, FV=2,362,238.88).  22.30% on our original investment.