Question

Today hugo got a new credit card, and he made a purchase of $1400. The card offers an introductory apr of 0% for the first 5 months and a standard apr of 30. 8% thereafter. If the card compounds interest monthly, how much money will the introductory apr save hugo in interest over the first 5 months? (assume that hugo will make no payments or additional purchases during the first 5 months, and ignore any possible late payment fees. ).

Answer 1

$189.13

That's the correct answer On Ax

Answer 2

$189.13

Explanation:

You want to know the interest saved if interest at 30.8% compounded monthly on a balance of $1400 is waived for 5 months.

Compound interest

The balance with interest compounded would be ...

A = P(1 +r/12)^n

where P is the principal earning interest at annual rate r for n months.

The amount of interest earned in that time is ...

I = P((1 +r/12)^n -1) = $1400(1 +0.308/12)^5 -1) ≈ $189.13

Hugo will save $189.13 in interest charges for the first 5 months.

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