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Which of the following will happen if you miss a monthly credit card payment?
 
(i) You will be charged a late fee.
(ii) You lose reward points.
(iii) Your APR will increase next month.
(iv) Both A and B.

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Reid Wolff
Reid WolffLv2
25 Mar 2020

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QUESTION 1 The recorded session provides a good overview on calculating this problem. Use the "A Number of Useful Financial Spreadsheets" to find a sample template you can use to work this problem. The problem you will answer has the following fact pattern: Fred, the accountant for XYZ Company forgot to pay a credit card payment that was due in the amount of $575. He noticed it exactly 1 month later when he was making the monthly payment. The late fee charged as $35. If you consider the $35 late fee a charge for the month of interest on the $575, what APR did the company pay because of Fred's mistake? Use monthly compounding and carry your answer two decimal points. (76.25% would be entered 76.25) Question 2 What would the Effective Annual Rate paid by the company based on th $35 late fee? Use monthly compounding and carry your answer two decimal points. (76.25% would be entered 76.25) Question 3 Your insurance premium for your autos are due and you have two options: Option 1 - Pay the full amount of $1,200 now. Option 2 - Pay $205 now and 5 monthly payments of $205 with the first payment starting in a month. What is the APR you are actually paying if you choose the installment Option 2? Use monthly compounding and carry your answer two decimal points. (76.25% would be entered 76.25) Question 4 What would the Effective Annual Rate be if you pursued the installment option? Use monthly compounding and carry your answer two decimal points. (76.25% would be entered 76.25)

Today (T=0), you have $10,000 in credit card debt with an APR of 15.0% and your credit card requires no monthly payment. If you could take some actions to increase your credit score by 50 points, your APR would change by 2.5%. HINT: Calculate the EAR and interpret the direction (+/-) of the change in APR. Which statement is most accurate if you plan to make no payments on your credit card over the course of the next year:

A. Opening and immediately closing several new credit cards could improve your credit score by 50 points, thus saving you $250 in credit card interest over the course of the next year.

B. Opening and immediately closing several new credit cards could improve your credit score by 50 points, thus saving you $283 in credit card interest over the course of the next year.

C. Opening and immediately closing several new credit cards could improve your credit score by 50 points, thus saving you $290 in credit card interest over the course of the next year.

D. Resuming regular payments on delinquent accounts could improve your credit score by 50 points, thus saving you $283 in credit card interest over the course of the next year.

E. Resuming regular payments on delinquent accounts could improve your credit score by 50 points, thus saving you $290 in credit card interest over the course of the next year

Which of the following is not true of credit cards?

  1. They offer the highest level of fraud protection.
  2. They are the best payment type to use when trying to stick to a budget.
  3. You can be charged a fee if you are late making a monthly payment.
  4. Some offer rewards, like cash back or airline miles.

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