Question

You receive a credit card application from Shady Banks Savings and Loan offering an introductory rate of .5 percent per year, compounded monthly for the first six months, increasing thereafter to 17.3 percent compounded monthly. Assume you transfer the $6,300 balance from your existing credit card and make no subsequent payments. How much interest will you owe at the end of the first year

Answer 1

Answer:

$738.39

Explanation:

Interest is compounded for first 6 months

Amount at the end of 6 months = $6,300 * (1+0.05/12)^6

Amount at the end of 6 months = $6,300 * 1.025262

Amount at the end of 6 months = $6,459.15

Therefore, 17.3%

Amount at the end of 12 months = $6,459.15*(1+0.173/12)^6

Amount at the end of 12 months = $6,459.15*1.0896782

Amount at the end of 12 months = $7,038.39

Interest owed = Amount owed - Principal

Interest owed = $7,038.39 - $6,300

Interest owed = $738.39