How long will it take ming to pay off his credit card

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Reference no: EM131459109

Ming and Juliana, who live in Thunder Bay, graduated from the same high school seven years ago and started as apprentices: Ming as a plumber; Juliana as a welder, making the same salary. Ming lived by himself in a one-bedroom apartment, liked going out, buying friends rounds of drinks, taking his dates to fancy restaurants, and drove a nice car. Before he knew it, he realized he had racked up $25,100 in credit card debt by his 25th birthday. Now that he has qualified and gotten his journeyman papers he is earning more and he plans to pay $800 a month until the balance is paid off. The interest rate on his credit card is 24%, compounded monthly.

Juliana, on the other hand, lived with a roommate, used her credit card responsibly and paid the balance in full each month. At age 25 she also got her papers and a big raise and decided she needs to get serious about saving because she wants to buy a house in five years. She plans to deposit $800 each month into her TFSA account where she earns 2% APR, compounded monthly.

Based on these scenarios, answer the following questions. Show calculations or explain your method to calculate. Note, the problem can be solved using the methods demonstrated in class. Don't worry about TFSA limits; by the time they use up all their room from past years, the annual allowable amount will have increased. You may not use a website. Assume Ming and Juliana start on the same day - Ming paying off debt (then saving), Juliana saving. For questions 3 and 4, we are interested in the end point, which is 5 years from the start.

1. How long will it take Ming to pay off his credit card?

2. How much interest will he have paid in total?

3. Assuming he starts savings $800 each month for a house down payment after paying off his credit card, how much will he have saved at the end of the 5-year period? His savings account will earn 2% APR, compounded monthly.

4. How much will Juliana have saved for her house during that same 5-year period?

5. How would you describe or classify Ming's opportunity cost of such high credit card debt?

Reference no: EM131459109

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