Question

Isaac and his family aim to earn one or two free flights for their upcoming Disney World trip by using a credit card that offers airline miles. In February, they charged $2500 to the card and promptly paid off the entire balance when the bill arrived. Given that the credit card has a 12% Annual Percentage Rate (APR), what is the most accurate estimate of the interest Isaac paid in that month?

Answer 1

Isaac likely did not pay any interest in that month as he paid off the credit card balance during the grace period when no interest was charged.

Step-by-step explanation:

If Isaac and his family charged $2500 to a credit card and paid off the entire balance when the bill arrived, the estimated interest paid in that month would be $0 if they paid within the grace period.

Credit card companies typically provide a grace period, often between 20 to 30 days, during which no interest is charged if the balance is paid in full. Since Isaac's family promptly paid off the balance, assuming they did so within the grace period, there would be no interest accrued regardless of the 12% Annual Percentage Rate (APR).

To calculate the interest paid, we can use the formula: Interest = Principal x Rate x Time. In this case, the Principal is $2500, the Rate is 12% (or 0.12 as a decimal), and the Time is 1 month. So, the interest paid would be: $2500 x 0.12 x (1/12) = $25. Therefore, the most accurate estimate of the interest Isaac paid in that month is $25.