Question

Margie has had a tough month.​ First, she had dental work that cost ​$700. ​Next, she had her car transmission​ rebuilt, which cost ​$1 comma 400. She put both of these unexpected expenses on her credit card. If she does not pay her credit card balance when​ due, she will be charged 21​% interest. Margie has ​$15 comma 000 in a money market account that pays 3​% interest. How much interest would she pay​ (annualized) if she does not pay off her credit card​ balance? How much interest will she lose if she writes the check out of her money market​ account? Should she pay off the​ balance?

Answer 1

Answer:

Calculate amount of annual interest:

The simple interest rate is the percentage of the credit that should be paid as interest on yearly basis. The amount of interest should be paid per year on a loan.

Miss. Margie has spent $700 for dental work and $1,400 for car transmission rebuilt. She has made both transactions on her credit card. If she does not pay credit balance of $2100, she will be charged 21 percent interest.

Calculate the annualized interest expenses.  

Miss. Margie should pay annual interest if she does not pay off credit card balance. She has a credit balance of $2100. The interest rate on credit balance is 21 percent.

Annual Interest = Amount owned x Interest rate

Annual Interest = 2,100 x 0.21  

Annual Interest = 441

Annual interest on credit card balance is $441

Money market investment is a high-liquid, and short term securities containing commercial paper. Treasury bill, banker's acceptance, promissory note.

Calculate the amount of interest received on money market investment. Miss. Margin has a money market account with $15.000. On this account she receives 3 percent interest.

So, the total interest earned on a money market account is:

Annual Interest = Amount x Interest rate

Annual Interest = 15,000 x 0.03

Annual Interest = $450

Miss. Margin has got $450 as annual interest on money market account of $15000 with the interest rate of 3 percent.

To calculate the amount of annual interest, she should write a check of 2,100 for pay off credit card balance, a money market account shows the balance of 12,900. The interest rate is 3 percent.

Annual interest = Amount x interest rate

Annual interest = 12,900 x 0.03

Annual interest = $387

If she should write the check out of her money market account she gets interest of $387.

So, she will lose the interest of $63

Miss. Margin should write the check'. She is able to cover credit card bill from money market account. It is always better to payoff credit card bill in full from income or saving than to pay credit card balance with interest on due balance.

If she pays credit card due balance from money market account, she will not have to pay interest charges

Answer 2

Answer:

a) annualized interest = $441

b) She will lose $63

c) She should pay of the balance as the cost is less than leaving the credit card bills unpaid.

Explanation:

The first step i n the question is to determine and compute Margie's annual Interest as follows:

First, we determine the amount Margie has already spent as follows:

Dental work = $700 and Car Transmission Building = $1,400

Total Amount owed = $700 + $1,400 = $2,100

The annual interest if the credit card balance is not paid therefore is:

Annual Interest = interest rate x Amount owed

= $2,100 x 21% = $2,100 x 0.21 = $441

Secondly, to compute how much Margie will lose if the amount is written out of her money market account

The money market account is a security or an asset to Margie. Hence, we first determine how much Interest Margie is to receive on her investment annually

Annual Interest on Money market Investment of $15,000

= Interest rate x Amount invested

= $15,000 x 0.03 = $450

Next, calculate how much interest Margie will get if $2,100 is written off from the $15,000 Money market investment as follows:

$15,000- $2,100 = $12,900

New interest to received on Money Market investment = $12,900 x 0.03 = $387

Therefore, she will lose the difference between the interest on 15,000 and the interest on 12,900 as follows =

$450  - $387

= $63

The advise is that Margie should write the check out of her money market account, by doing this she will only lose $63 on her money market but will end up saving $441 interest she would have paid if the credit card is left unpaid after a year.