Your VISA bill for September has one item: a 72 inch Plasma television costing $
ID: 2798049 • Letter: Y
Question
Your VISA bill for September has one item: a 72 inch Plasma television costing $3,896 which was purchased on Sept 15th. It is now October 15th at midnight. You have missed the payment deadline and now owe interest. VISA calculates interest on the daily balance (with daily compounding) from the date of purchase. Assume that the purchase occurred at midnight, so the Sept 15th purchase accrues its first day of interest at the end of Sept 16th. The annual rate charged by VISA is 18%. If you pay off the debt (including interest) right now (at midnight on October 15th), then how much do you have to pay? (Assume a 365-day year.) If you pay off the debt (including interest) right now (at midnight on October 15th), then how much do you have to pay?
Explanation / Answer
To Pay Off the debt total bill of$7850 ($3896 + the interest $3954) have to be paid.
Interest has been calculated on the daily basis for 30 Days which can be said as continuous compoubding.
Formula for contilous compounding is C0 X ert
Putting the Values in the Formula as
=$3896 X e.18*30/365
=$3896 X e.0147
=$3896 X 2.718^.0147 (As Value of e = 2.718)
=$3896 X 1.014
=$3,954
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