Question

In an​ emergency, you used your credit card for a​ $500 cash advance. You just received your statement and your total balance due is​ $1,859, and the cash advance was the most recent charge. You want to be sure to pay for the cash advance so you send in a payment of​ $700. Your credit card has an APR of 12 percent. How much of your payment will apply to the cash

Answer 1

Answer:

$560 will apply to the cash advance.

Explanation:

Given : $500 in cash advance is owed to the credit card therefore this is the present value Pv

The Annual percentage rate is 12% which will be i

The number of years that i will pay off this advance is not given therefore we see that i pay $700 because I want to make sure I pay for the cash advance therefore this will be paid over 1 year or less.

Then we will use the Future value formula as to check how much will I be owing the bank for the cash advance only after taking into consideration the annual percentage rate.

which the future value formula is as follows:

$Fv= Pv(1+i)^n$

Then substitute the above mentioned values into this formula:

Fv = $500(1+12%)^1

Fv = $560

therefore after a year this is the amount that i will be owing the credit card even if I decide to pay it in less than a year still they will count the interest on Annual Percentage Rate basis so therefore in the $700 i paid the $560 was for the cash advance that I took most recently.

Answer 2

Answer:

The yearly annual interest expense would be $139.08

Explanation:

As per the question total advance amounted to $1,859 including the recent cash advance of $500. However, you intend to make payment of $700. Therefore, total advance stands at $1,159 ($1,859-$700) and 12% APR will be applied on the same amount i.e $1,159*12% = $139.08