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 .6 percent per year, compounded monthly for the first six months, increasing thereafter to 16.3 percent compounded monthly. Assume you transfer the $5,300 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 .6 percent per year, compounded monthly for the first six months, increasing thereafter to 16.3 percent compounded monthly. Assume you transfer the $5,300 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

FV for first 6 months = 5,300×[1+(0.006/12)]6

=5,300× (1.0005)6

= $5,315.92

The FV in another six months = 5,315.92×[1+(0.163/12)]6

=5,315.92× (1.013583)6

= $5,764.15

Interest Accrued is $5,764.15-$5,300 = $464.15

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