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Eileen, who is currently paying ​$1,752 per year in finance charges to her credit card​ company,...

Eileen, who is currently paying ​$1,752 per year in finance charges to her credit card​ company, wants a car that costs ​$9,000. How long would it have taken Eileen to save for the outright purchase of the car if she did not have any credit card debt and used the interest payments to save for the purchase of the​ car? Eileen can invest funds in an account paying 3​% interest.

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Answer #1

PV = 0

FV = 9000

PMT = 1752

Rate = 3%

Applying annuity formula:

FV = PMT *[( 1 + rate) n -1 ] / Rate

9000 = 1752 * [(1+ 3%) n -1] / 3%

270 = 1752 *[( 1+3%)n -1]

n = 4.85 years

Alternatively using NPER function in excel or financial calculator:

NPER (Rate, PMT,PV,FV)

= NPER(3%,-1752,0,9000)

= 4.85 years

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