Question

If you charge $500 on a credit card today, how much will the balance be in two years (assuming no additional fees) if the credit card has a 10% APR that is compounded— a. once a year? b. once a month? c. once a week?

Answer 1

simple interest: i = p * r * t; compound interest would be A=p(1+r/n)^(nt)

Here, A = $500 (1.10)^2 = $605 (answer for "once per year."


Once per month:

A = $500 (1 + 0.10/12)^(12*2) = $610.20


Once per week: Can y ou figure that out? # of compounding periods is 12 per year in this problem.