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In general, reducing the present value (PV) of a credit card while keeping the number of periods (n) and interest rate (i) the same will _____. a. decrease the monthly payment (P) b. increase the monthly payment (P) c. eliminate the monthly payment (P) d. have no effect on the monthly payment (P)

Respuesta :

The answer is:

 reduce the monthly payment.

Answer:

A. Decrease the monthly payment (P)

Step-by-step explanation:

We know the annual payment formula as,

[tex]P=\frac{r \times PV}{1-(1+r)^{-n} }[/tex],

where P = monthly payment, PV = present value, r = rate of interest and n = time period.

Now, we are asked to find the behaviour of P as PV reduces and there is no change in 'r and n'.

Therefore, from the formula it is clear that P is in direct proportion to PV.

So, value of P reduces as PV reduces.

Hence, option A is correct.

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