Question

Tanya has a balance of $1700 on a credit card with an APR of 24.2%, compounded monthly. About how much will she save in interest over the course of a year if she transfers her balance to a credit card with an APR of 10.8%, compounded monthly? (Assume that Tanya will make no payments or new purchases during the year, and ignore any possible late payment fees.)

Answer 1

$267.28

Explanation:

Answer 2

Balance on credit card = 1700

We use compound interest formula

A =
`P (1+ (r)/(n) )^(n*t)`

Where P -> principal amount

r -> rate of interest

t-> years

n - > compounding period (monthly=12)

We consider two cases

Case 1: P= 1700, r=24.2%= 0.242 , t=1 , n= 12

Apply the formula , A =
`\[1700 (1+ (0.108)/(12) )^(12*1)\]`

= 2160.2423

Case 2: P= 1700, r=10.8%= 0.108 , t=1 , n= 12

Apply the formula , A =
`\[1700 (1+ (0.108)/(12) )^(12*1)\]`
= 1892.9664

Amount she saves = 2160.2423 - 1892.9664

= 267.2759

Interest saved = $267.28