(solution) Monty currently has a Visa card from his bank with the following

Monty currently has a Visa card from his bank with the following terms: 18% on purchases, 24% on cash advances with a 4% cash advance fee on the amount, and a default or penalty rate of 36%. His current statement shows a balance of $6,000. So far he has only taken one cash advance, withdrawing $1,000 from a casino in Las Vegas a year ago, which he has already paid off. Lately he has been having a hard time paying more than the minimum payment of 4% of his balance. The only assets he owns are a seven-year-old car ($3000) and a $2,500 certificate of deposit that has a 5% APR.

Build Monty?s credit card account and balance sheet.

1.What will be Monty's minimum payment due?

2. What is the current APY on this credit card?

3. What is the APY on Monty's default or penalty rate?

4. If Monty buys a new television for $800 this month and sends in a credit card payment of $1,200 when he gets his statement, how much interest will he pay on the television for the month?

5. Using the Adjusted Balance Method: If Monty sends in a payment for $1,000, how much will the finance charge be on his remaining balance? (Use the $6,000 balance for your calculations).

6. It is now three months later and Monty has missed two payments in a row and he is now paying the default or penalty rate on his balance. How much interest per month will Monty be accruing on his unpaid balance?

7. What advice would you give to Monty concerning his use of credit cards?


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