You have a $1,550 balance on your 15% credit card. You have lost your job and be
ID: 3148362 • Letter: Y
Question
You have a $1,550 balance on your 15% credit card. You have lost your job and been unemployed for 6 months. You have been unable to make any payments on your balance. However, you received a tax refund and want to pay off the credit card.
a. How much will you owe on the credit card if you have not made a payment for 6 months? (Round your answers to the nearest cent.)
b. How much interest will have accrued? (Round your answer to the nearest cent.)
Interest accrued $
c. What will be the effective rate of interest after the 6 months? (Round your answer to the nearest hundredth percent.)
Effective rate of interest %
Explanation / Answer
a). Amount owed on credit card
After 1st month
Interest = PTR/100
= 1550*1/12*15/100
= $19.4
Total amount owed after 1st month = P+I = $1550 + $19.4 = $1569.4
Total amount owed after 2nd month = P+2I = $1550 + 2*19.4 = $1588.8
Total amount owed after 3rd month = P+3I = $1608.2
Total amount owed after 4th month = P+4I = $1627.6
Total amount owed after 5th month = P+5I = $1647
Total amount owed after 6th month = P+6I = $1666.4
b)Monthly interest rate = 15/12 = 1.25 % = 0.0125
Monthly Accrued interest = daily balance * 0.0125 = 1550 * 0.0125 = $19.4
6 months accrued interest = 6*19.4 = $116.4
c) Effective rate of interest r = ( 1 + i/n)n - 1
Where i = interest rate and n is the compounded period
r =(1 + 0.15/12)12 - 1 = 0.1608
Therefore effective rate of interest = 16.08%
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