You are a CFA (chartered financial analyst). Madonna has come to you because she needs help paying off her credit card bills. She owes the amounts on her credit cards shown in the Table below. Madonna is willing to allocate a fixed amount of dollars per month (P) to pay off these credit cards, i.e., the total payments on the three cards each month cannot be more than P. All cards must be paid off within a deadline which can be negotiated with the card companies. Madonna wants the monthly payment (P) to be as small as possible. She would like to know how the minimum monthly payment (P) can change with the deadline which can be in the range of 12 months to 36 months. Her intuition is that the shorter the deadline the larger the minimum monthly payment. To solve this problem, you must understand how interest on a loan works. To illustrate, suppose Madonna pays $5,000 on Saks during month 1. Then her Saks balance at the beginning of month 2 is

20, 000 + 15, 000 ? 0.005 + (20, 000 ? 15, 000) ? 0.02 ? 5, 000

This follows because during month 1 Madonna incurs 15, 000 ? 0.005 + (20, 000 ?

15, 000) ? 0.02 in interest charges on her Saks card, you need to present the results of your research in both the tabular and graphical forms. In the tabular form the first column is the deadline in months and the second column is the minimum monthly payment (P). In the graphical form the horizontal axis is the deadline in months and the vertical axis is the minimum monthly payment (P ). Formulate an LP(the deadline is a parameter in your LP model)

Transcribed Image Text:

Card Balance($ Saks 20,000 Macys 40,000 Monthly 0.5 cent for each dollar below 15,000, 1.5 Card Balance($ Saks 20,000 Macys 40,000 Monthly 0.5 cent for each dollar below 15,000, 1.5

Answer rating: 100% (QA)

Let ax i be amount remaining for Saks at month i x i be payment to Saks at month i ay i be ... View the full answer