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You receive a credit card application from Shady Banks Savings and Loan offering an intraductaly...

Question:

You receive a credit card application from Shady Banks Savings and Loan offering an intraductaly rate of 1.5 percent per year, compounded monthly for the first six months, increasing thereafter to 18 percent compounded monthly.

Assuming you transfer the $10,000 balance from your existing credit card and make no subsequent payments. how much interest will you owe at the end of the first year?

Credit Card:

A credit card is considered as a revolving account that allows the cardholder to make purchases up to the credit limit and can pay off card debt by several payments later.

Answer and Explanation:

Given information:

  • Balance = $10,000
  • First 6-month interest = 1.5% annually
  • Last 6-month interest = 18% annually
  • No subsequent payments during the year and no fee of the balance transfer.

Calculate the total interest at the end of the year:

{eq}Total\:Interest =\displaystyle $10,000\times (1+\frac{1.5\%}{12})^6\times (1+\frac{18\%}{12})^6 - $10,000 = $1,016.70 {/eq}


Learn more about this topic:

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How to Calculate Interest Expense: Formula & Example

from Financial Accounting: Help and Review

Chapter 5 / Lesson 18
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