Question

Kendall wants to use a credit card to purchase new furniture. His standard

APR is 22.65%, but his credit card is offering a promotional rate of 3% for six
months. The cost of the furniture, including sales tax, is $1,014. Assume that
Kendall has a previous unpaid balance, and his monthly payments apply to that
balance. How much will the promotional rate save Kendall in finance charges
during the six-month period?

Answer 1

$199.98

Explanation:

To calculate the amount that Kendall will save in finance charges during the six-month promotional rate period, we need to calculate the finance charges he would have incurred with his standard APR and then compare it to the finance charges he will incur with the promotional rate.

First, let's calculate the monthly finance charges with the standard APR. To do this, we need to know the average daily balance for each month. Assuming Kendall has a previous unpaid balance, let's say it is $500. And assuming he makes no other purchases, his average daily balance for each month would be:

$1,014 + $500 = $1,514The finance charges for each month with the standard APR would be:

$1,514 * (22.65/100) / 12 = $38.37

So, the total finance charges for the six-month promotional rate period with the standard APR would be:

$38.37 * 6 = $230.22

Next, let's calculate the finance charges with the promotional rate:

$1,514 * (3/100) / 12 = $5.04

So, the total finance charges for the six-month promotional rate period with the promotional rate would be:

$5.04 * 6 = $30.24

Finally, we can calculate the amount that Kendall will save in finance charges during the six-month promotional rate period:

$230.22 - $30.24 = $199.98

Therefore, Kendall will save $199.98 in finance charges during the six-month promotional rate period.