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27 August, 15:18

Helen recently received a credit card with a nominal interest rate of 21 percent. With the card, she purchased some new clothes for $250. The minimum payment on the card is only $20 per month. If Helen makes the minimum monthly payment and makes no other charges, how long will it be before she pays off the card?

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  1. 27 August, 15:45
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    It will take 14.2 months before Helen pays off the card.

    Explanation:

    PV Ordinary Annuity = C*[ (1 - (1+i/100) ^ (-n)) / (i/100) ]

    C = Cash flow per period

    i = interest rate

    n = number of payments

    250 = 20 * ((1 - (1 + 21/1200) ^ (-n*12)) / (21/1200))

    n (in years) = 1.19

    Months = years*12 = 1.19*12 = 14.2 months
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