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

## Question:

You receive a credit card application from Shady Banks Savings and Loan offering an introductory rate of 3.9 percent per year, compounded monthly for the first six months, increasing thereafter to 18.8 percent compounded monthly Assuming you transfer the \$19,000 balance from your existing credit card and make no subsequent payments, how much interest will you owe at the end of the first year?

## Calculating Interest Payments on Credit Cards

To calculate interest payments on credit cards you have to know how to convert an annual percentage rate, APR, into an effective annual rate, EAR. The EAR will determine what you actually pay in interest on your debt.

To calculate the effective annual rate given an APR, we need to convert the APR to an EAR using the amount of compounding periods in a year given the...

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Effective Annual Rate: Formula & Calculations

Chapter 7 / Lesson 6
14K