Question
In: Finance
You receive a credit card application from Shady Banks Savings and Loan offering an introductory rate...
| You receive a credit card application from Shady Banks Savings and Loan offering an introductory rate of 2 percent per year, compounded monthly for the first six months, increasing thereafter to 16 percent compounded monthly. Assuming you transfer the $7,400 balance from your existing credit card and make no subsequent payments, how much interest will you owe at the end of the first year? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) |
Solutions
Expert Solution
Given
Amount availed on credit card = $7,400
Rate of interest for first 6 months=2% compounded monthly
Rate of interest for next 6 months =16% compounded monthly
FV=PV(1+r/k)6n*k
where;
FV= Future Value
PV=Present Value
r=Rate of interest
k=No.of times compounding in a year
n=No.of years
Payable value at the end of six months=7400(1+0.02/12)^1/2*12
=7400*1.00204
=7415.10
Payable value at the end of one year=7415.10(1+0.16/12)^1/2*12
=7415.10*1.0806
=8012.76
Interest payable(owe) = Future value - Present value
=8012.76-7400.00
=$612.76
jeff jeffy answered 2 years agoRelated Solutions
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