3. You owe $1,350.00 on a credit card with a 14.25% APR. You pay $300.00 at the beginning of the month. How much interest do you
save by paying at the beginning of the month versus at the end of the month? $
4. Imagine you put the $300 in a savings account earning 3.0% APR instead of using it to pay down your credit card as in Problem 3. What is the difference between the interest your savings account would earn that month vs. the interest that would accrue on your credit card that month if you didn't use the $300 to pay it down?
1) Find the monthly rate 14.25% / 12 = 1.1875% If you pay at the beginning of the month 1350 -300= $1050 If you pay at the the end of the month 1350+ (1350*1.1875%)-300= $1,066.03 So I saved 1066.03-1050=$16.03 saved
2)$300 in a savings account earning 3% APR would earn 300*(3%/12) = $0.75 in one month. $300 on a credit card at an APR of 14.25% would cost you 300*(14.25%/12) = $3.56 in one month. If you spend $3.56 on the credit card to earn $0.75 in the savings account by choosing to bank the $300, you lost $2.81.