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18 March, 07:53

Jill has a balance of $5,000 on one credit card with an annual interest rate of 10%. To pay off the $5,000 in three years, Jill will have to make a minimum payment of $161.34 per month. On a second credit card, Jill has a balance of $5,000 with an annual interest rate of 5%. To pay off the $5,000 in three years, Jill will have to make a minimum payment of $149.85 per month.

How much more does Jill have to pay when the interest rate changes from 5% to 10% on a $5000 balance?

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  1. 18 March, 10:16
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    Given:

    First credit card:

    P = $5,000

    i = 10%

    n = 3 years

    A = $161.34/month

    Second credit card:

    P = $5,000

    i = 5%

    n = 3 years

    A = $149.85/month

    If the interest rate of the other card will increase from 5% to 10%, she will have to pay an additional of:

    $161.34 - $149.85 / month = $13.49 more per month

    Therefore, Jill will have to pay $322.68/month instead of $311.19/month with a monthly difference of $13.49 per month, for three years, if the interest rate changes from 5% to 10% on a $5,000 balance.
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