The Problem:

You will investigate what happens when you pay off a credit card debt by paying only the minimum payment each month.

Assumptions:

We will assume that the credit card company uses the Adjusted Balance Method. This means that each month begins with an outstanding balance, which is the money that you still owe. At the beginning of the next month, the new balance is computed using the following formula.

new balance = outstanding balance -payment + financial charge

We will also assume that while you are paying on this credit card debt, you do not make any additional charges on the card.

Data:

The outstanding balance on your credit card is currently $1000.

The financial charge is calculated as simple interest at 1:5% per month.

The minimum monthly payment is either 2% of the outstanding balance or $10, whichever is greater.

Model:

Follow these directions to create a spreadsheet to determine how much money you owe after each month.

(a) Set up a spreadsheet with the same format as the one we constructed in class. Wrap text in cells when appropriate. Before you enter any numbers or formulas, your spreadsheet should look like: : :these are the blocks for the spread sheet

A B C D E F

1 Your Name

2. Initial balance Interest rate min. payment % min. payment $

3

4 month outstanding balance payment remaining finance charge new balance

5 1

6 2

7 3

(b) Fill in the appropriate numbers in row 3 (the same ones as in class).

(c) Enter the appropriate formulas in the other cells (using the same formulas as in class). The only cells in which you should be entering numbers rather than formulas are those in row 3, and possibly those in column A. Every other blank cell must be filled with a formula.

(d) Drag your formula cells down until your new balance is zero or a negative number. (You will have to go a LONG way down.)

(e) Drag your month number cells down until you reach the month in which the new balance is zero or negative.

(f) Format your cells to display numbers as currency or percents where appropriate.

(g) Change your payment in the last row (where the new balance is zero or negative) so that it is equal to the outstanding balance (because you don’t want to pay more than what you owe for the last payment).

(h) Use the sum function to add all of the monthly financial charges together.

(For example, if you wanted to add up all of the numbers in cells E5, E6,E7,: : :, E59, E60, you would enter =sum(E5:E60) in a blank cell). Use an adjacent cell to give a name to what your sum represents.

(i) Type Ctrl +~ on your keyboard to display the formulas in your spreadsheet. (The ~ key is to the left of 1 on the keyboard.)

(j) Print the first and last pages only of your spreadsheet. Use landscape orientation and display the grid lines. Also adjust column widths appropriately so that all of your columns fit across a single page.

Interpret the Spreadsheet:

(1) If you only make the minimum payment every month, how much will you pay the credit card company in finance charges to pay off your total $1000 debt?

(2) How long will it take to pay off your debt if you only pay the minimum payment each month? Give your answer as a number of years plus the number of months in the remaining partial year.

(3) In class, we used a linear model to predict that it would take approximately 16 years and 8 months to pay off the debt. You should have found a different answers using your spread sheet model. Explain why these two models produce different answers.

Do not do any research on the internet or elsewhere for this project.

Important Details:

Your submission will consist of two pages of your spreadsheet (the first and last, with landscape orientation, gridlines displayed, all columns fitting across one page, and formulas displayed) followed by an additional page in which you answer the questions in the Interpret the Spreadsheet section