Question

If the typical balance on Lucy's credit card is $750 and the interest rate (APR) on her credit card is 16%, how much in interest would you expect Lucy to be charged in a typical month?

Answer 1

Given that the APR is 16%, the monthly interest rate is given by


`i= ((1+ (0.16)/(12) )^(12)-1)/(12) \\ \\ =((1+0.0133 )^(12)-1)/(12) \\ \\ =((1.0133 )^(12)-1)/(12)= (1.172-1)/(12) \\ \\ = (0.1723)/(12) =0.01436=1.436\%`

Therefore, the amount of interest Lucy will be charged in a typical month is given by 0.01436 x $750 = $10.77