Michael Has a Credit Card Debt of $75,000 That Has

question 91

Multiple Choice

Michael has a credit card debt of $75,000 that has a 12% APR, compounded monthly. The minimum monthly payment only requires him to pay the interest on his debt. He receives an offer for a credit card with an APR of 4% compounded monthly. If he rolls over his debt onto this card and makes the same monthly payment as before, how long will it take him to pay off his credit card debt?

• A)112 months
• B)113 months
• C)120 months
• D)122 months

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Definitions:

Risk-free Asset

An investment that is expected to return its full original value along with a specified interest rate with virtually no risk of financial loss.

Beta

An evaluation of the unsteadiness, or systematic jeopardy, of a security or collective financial investments when compared to the market as a whole.

CAPM

The Capital Asset Pricing Model, a formula used to determine the theoretical expected return of an investment given its risk relative to the market.

Risk-free Asset

An investment with zero risk of financial loss, typically considered to be government bonds.