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Credit Card Lab
Credit Card Lab
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11/6/23, 5:59 PM Lumen OHM
Warning! You must answer all of the questions in order for the lab to function properly. You can
submit answers one at a time (or multiple at a time) so that you can make sure it is correct before
proceeding to the next. It is a good idea to also keep a written account of the given values (e.g.
original balance, annual interest rate, etc.) as you will be asked to refer back to these values as you
go. Once you have "submitted" an answer to a question, you can click back and forth between the
parts if you need to, though you may need to click on "Reattempt this question" at the top of the
page. Don't worry, your correct answers will be saved!
Round all of your answers to the nearest cent when appropriate to do so. Some questions are
programmed to allow for slight variations in the answers due to rounding errors, BUT it is important
that you don't round values you are using in formulas. Only round your final answers.
In this lab, you will be computing various values associated with paying off a balance on a
credit card. Imagine the following scenario:
You have received your monthly credit card statement and must now deal with the financial realities
of last month's birthday celebration. While your birthday was deserving of a celebration, dealing
with the $1200 in credit card charges will require some planning.
Your credit card statement lists the APR (Annual Percentage Rate) for your balance to be 14.2 % .
This is the yearly interest rate the credit card company uses in calculating interest due on your
balance.
AP R = 0.142
(Note: For this lab,round your monthly interest rate to 5 decimal places.
Using more decimal places of accuracy would result in minor changes to your answers, but
just by a few cents.)
AP R
i = ≈ 0.01183
12
The minimum payment required by your credit card company is $25 per month. Assuming that you
do not make any new charges to your account, you will answer the following questions to help you
determine the best plan for paying off this credit card debt.
a) To begin with, let's check out the plan of only paying the minimum amount due each month. To
get a feel for how this will affect the balance, you'll compute the interest and the balance on the first
few months assuming a the minimum monthly payment of $25.
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Let B represent the balance for the k month and I represent the interest charged for the k
k
th
k
th
month. For example, I is the interest charged on the original balance and B is the original balance
1 1
plus I minus the $25 payment (said differently, B is the balance after one month). Start by finding
1 1
those values. For this exercise, round all values to the nearest cent (2 decimal places). (Hint:
Ik = i ⋅ B )
k−1
I1 = $ 14.20 B1 = $ 1189.20
Now use B to find the interest charged for the 2 month which is I , and the balance after 2
1
nd
2
I2 = $ 14.07 B2 = $ 1178.27
Got it? Ok, you're ready to figure out how much interest you will be charged for the rest of the year
and what your final balance will be after 12 months of just making the minimum payment. Finish
filling in the following "table".
I3 = $ 13.94 B3 = $ 1167.21
I4 = $ 13.81 B4 = $ 1156.02
I5 = $ 13.68 B5 = $ 1144.70
I6 = $ 13.54 B6 = $ 1133.24
I7 = $ 13.41 B7 = $ 1121.65
I8 = $ 13.27 B8 = $ 1109.92
I9 = $ 13.13 B9 = $ 1098.05
b) How much of the original balance has been paid off at the end of the first year?
Answer: $ 138.42
c) What is the total amount that has been paid to the credit card company at the end of the first
year? (this is just your minimum payment per month times 12 months.)
Answer: $ 300
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d) What percentage of what you paid went to paying the interest? Express your answer as a
percentage and round it to one decimal place.
Answer: 53.86 %
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Warning! You must answer all of the questions in order for the lab to function properly. You can
submit answers one at a time (or multiple at a time) so that you can make sure it is correct before
proceeding to the next.
Part II
A formula for calculating the payment, P , required to pay off a debt of amount D in M months
with monthly interest rate i is
D ⋅ i
P =
−M
1 − (1 + i)
a) Using this formula, solve for M . Use either the Common log, log, or the Natural log, ln. Starting
with `"M=", enter the whole formula. Note: Use an asterisk (*) between any variables that are
being multiplied together. For example, D ⋅ i.
M =−
ln
(− D
P
·i
+1 )
ln (1 + i)
If you need to, look back to Question 1 to recall the debt amount.
D = $ 1200
b) Determine the number of months it will take to pay off the credit card debt with minimum
monthly payments of $25. You'll need the monthly interest rate from Part I: i = 0.01183. Round
the number of months to two decimal places.
Number of months: 71
Answer: 5.9
d) What is the total amount paid to the credit card company, rounded to the nearest dollar? (Hint:
Multiply the payment amount with your answer to part b)).
Interest:$ 575
Warning! You must answer all of the questions in order for the lab to function properly. You can
submit answers one at a time (or multiple at a time) so that you can make sure it is correct before
proceeding to the next.
Part III
Using the formula for M from question 2, answer the following questions:
a) Determine the number of months it will take to pay off the $1200 credit card debt with a monthly
payment of $50. Round the number of months to two decimal places.
Answer: 2.4
c) What is the total amount paid to the credit card company, rounded to the nearest dollar? (Hint:
Multiply the payment amount with your answer to part a))
Interest: $ 220
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Warning! You must answer all of the questions in order for the lab to function properly. You can
submit answers one at a time (or multiple at a time) so that you can make sure it is correct before
proceeding to the next.
Part IV
Using the formula for M from question 2, answer the following questions:
a) Determine the number of months it will take to pay off the $1200 credit card debt with a monthly
payment of $75. Round the number of months to two decimal places.
Answer: 1.5
c) What is the total amount paid to the credit card company, rounded to the nearest dollar? (Hint:
Multiply the payment amount with your answer to part a))
Interest: $ 138
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Warning! You must answer all of the questions in order for the lab to function properly. You can
submit answers one at a time (or multiple at a time) so that you can make sure it is correct before
proceeding to the next.
Part V
a) Using the formula for calculating the payment, P , determine how large of a payment is required
to pay off a debt in 12 months. Use the same monthly interest rate i = 0.01183 and the same debt
amount $1200 from the first question. The formula you need is:
D ⋅ i
P =
−M
1 − (1 + i)
P = $ 107.86
b) What is the total amount paid to the credit card company? (Hint: Multiply the payment amount by
12).
Interest: $ 94.32
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This needs to be a separate page that is typed, proof-read for typos, spelling, and grammar. Your
writing should be in an essay form (written in paragraphs). Use 12-point font and double space. Add
a title (e.g. Reflective Writing for Credit Card Lab).
Provide a brief introduction explaining the lab in your own words. Also in the introduction, tell the
audience which mathematical techniques you used in the lab (e.g. percentages, payment formulas,
logarithms, etc.). Then, please respond to each of the questions.
Do you think this project shows how math can be applied to the real world? If "yes", please
elaborate-why are the results important or beneficial? If "no", how could the lab change to
make it more applicable to the "real world"?
Can you give an example of another application where this type of analysis would be
beneficial? Be specific.
If you were a financial adviser, why would it be important to be able to explain the details of
this project to clients?
Did this assignment change your opinion of the usefulness of math? Write one paragraph
stating what ideas changed and why. If this project did not change the way you think, write
how this project gave further evidence to support your existing opinion about applying math.
Be specific.
What is the best plan for paying off a credit card balance? What is the worst approach and
why? What should you do if you can't afford the payments required for the best plan? What
are two things that the "average" consumer can learn by completing this assignment?
ePortfolio: Post a copy of this lab, including the Reflective Writing, to your ePortfolio (if you
need to, scan a copy in the Copy Center). For more information about ePortfolios, please see
the syllabus.
True
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