You receive a credit card application from Shady Banks Savings and Loan offering

Question

You receive a credit card application from Shady Banks Savings and Loan offering an introductory rate of .5 percent per year, compounded monthly for the first six months, increasing thereafter to 17.6 percent compounded monthly. Assume you transfer the $6,600 balance from your existing credit card and make no subsequent payments.

How much interest will you owe at the end of the first year?

You receive a credit card application from Shady Banks Savings and Loan offering an introductory rate of .5 percent per year, compounded monthly for the first six months, increasing thereafter to 17.6 percent compounded monthly. Assume you transfer the $6,600 balance from your existing credit card and make no subsequent payments.

How much interest will you owe at the end of the first year?

Explanation / Answer

Amount owed at the end of 6 month = 6600*(1+0.5%/12)^6

Amount owed at the end of 6 month = $ 6616.52

Amount owed at the end of 12 month = 6616.52*(1+17.6%/12)^6

Amount owed at the end of 12 month = $ 7220.54

Interest will you owe at the end of the first year = Amount owed at the end of 12 month - Principal

Interest will you owe at the end of the first year = 7220.54 - 6600

Interest will you owe at the end of the first year = $ 620.54

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