Determine the cost of credit for a 2-year, $5,000 credit card loan with a monthly payment of $257.67, which corresponds to a fixed compound interest rate of 21.3% compounded monthly. Round the answer to two decimal places as needed.
To find the cost of credit we can subtract the loan amount from the total amount paid over the course of the loan.
The monthly payment is $257.67 and the loan term is 2 years, so the total number of payments is 2 years * 12 months/year = 24 payments.
The loan amount is $5,000, so the total amount paid over the course of the loan is 24 payments * $257.67/payment = $6,184.08.
The cost of credit is $6,184.08 - $5,000 = $1,184.08.
Rounded to two decimal places, the cost of credit is $1,184.08.