hool Shawn had a hard time finding a job. He could ret make his credit card paym

Question

hool Shawn had a hard time finding a job. He could ret make his credit card payments becouse he was Visa decided that they would work with him during hisf They offered to let him go payment free for a fullrd inarciel hard year while he for over a ycor. financial hard times looked for they still would charge him interest on his credit card work. However, balance during this time. a) How much will Shown owe on his Visa card after 1 year off f payments? b) How much will Shawn's monthly paymerts be in order to pay off the card in 10 years? c) How much money will Shawn have paid in interest after the card has been paid off

Explanation / Answer

a. At the end of 1 year, the total amount Shawn has to pay the bank will become the principal amount on which the bank will charge interest , this can be calculated by using the compound interst formula

A= P (1+r/n)nt where A is the amount he will have to pay, P is the credit card balance of 1 year. r is the interest rate the bank will charge, n is the number of times the interest will be compounded in a year, (e.g. If the interest is compounded monthly, n=12) and t is the number of years for which the interest is compounded.

b. Since we know that for t=10,

Amount = P (1+r/n)10n

The number of months in 10 years = 12×10= 120

Thus his monthly installment = A/120

c. The money he paid as interst after the full payment on the card= A- P = P (1+r/n)nt -P= P [ (1+r/n)nt -1] .

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