Question

30. Your parents' original purchase price was $1,550.00 plus 7.25% sales tax. They enter into an agreement where the interest (11.75% APR) is walved

for the first 12 months provided they make the required monthly payments; otherwise the interest is accrued from the date of purchase. They miss

the first payment due date. The late fee is $29.00. How much is the interest?

$16.27

$152.13

$195.33

$15.18

Answer 1

$195.33

Explanation:

To calculate credit card interests we need to use its balance, because if a person makes several purchases, then the balance will be different each day. But, in this problem, we assume that these parents only make one purchase, which is given.

We need to use the APR which is the Annual Percentage Rate, which is give by the credit card company. So, the normal procedure to calculate the interest that the parents will pay, we should calculate the Average Daily Balance and then divide it by number of days involved. But, again, in this problem, we have only one purchase all along, which means that the balance remains constant, during the complete 12 months period.

At the end, all these factors about the problem make it easier, because we only need to apply the APR to the final price of the purchase, due to the constant balance. In this sense, the final price is $1550 plus the sales tax (7.25%), that is:
`$1550 + (7.25)/(100)1550 = $1662.38`

As you can see, the final price is $1662.38, which was calculated considering the sales tax, that is, the price percentage extra.

Then, If we multiply this final price with the APR of the credit card:

`$1662.38(11.75)/(100) = $195.33`

Hence, the interest is $195.33

PD: When we operate percentages, we divide the number by 100, to have the decimal equivalence of the percentage.

Answer 2

$16.27

Explanation:

To determine the interest, first you have to find the total amount of the original purchase including the sales tax paid:

$1,550*1,0725= $1,662

Now that you have the total amount paid, you have to calculate the tax. You have to find the monthly interest rate as 11,75% APR is the annual percentage rate and then, multiply that for the purchase price:

(0,1175/12)*$1,662= $16.27

The interest is $16.27.