Question

Harold has a balance of $2200 on a credit card with an APR of 31.3%, compounded monthly. About how much will he save in interest over the course of a year if he transfers his balance to a credit card with an APR of 19.1%, compounded monthly? (Assume that Harold will make no payments or new purchases during the year, and ignore any possible late payment fees.)

Answer 1

The answer is 337.49

Answer 2

$339

Step-by-step explanation:

If Harold doesn't make any more payments or purchases during the year, his balance at the end of the year will be:

APR 31.3%

$2,200 x (1 + 31.3%/12)¹² = $2,200 x (1 + 2.61%)¹² = $2,200 x 1.0261¹² = $2,997

APR 19.1%

$2,200 x (1 + 19.1%/12)¹² = $2,200 x (1 + 1.59%)¹² = $2,200 x 1.0159¹² = $2,658

The transfer would save Harold $339 (= $2,997 - $2,658)