Question

"Your friend wants to pay off his credit card with a balance of $880.00 and an interest rate of 16.65% APR by getting a loan from you. You agree to the loan, but insist your friend pay you interest of 3.25% APR. Your friend agrees. How much interest does your friend save at the end of the first month by paying you instead of the credit card?"

Answer 1

$9.83

Step-by-step explanation:

Answer 2

$8,20

Step-by-step explanation:

The APR (annual percentage rate) is the interest rate you will pay in one year. In this case, the problem asks for the interests saved in the first month, then, we must convert both annual rates in monthly rates with this formula:

Monthly rate= ((1+annual rate)^(1/# periods))-1

Monthly rate(credit card)= ((1+16.65%)^(1/12))-1

Monthly rate (credit card)= 1.29%

Monthly rate(friend)= ((1+3.25%)^(1/12))-1

Monthly rate(friend)=0.27%

Interest first payment with monthly rate (credit card) = $880.00*1.29%= $10.33

Interest first payment with monthly rate (friend)= %800*0.27% = $2.13

She or he saved: $10.33-$2.13= $8,20