Question

Using the formula: Compound Interest Formula for Interest Paid N Times Per Year A = P(1 + APR/n)^(nY)

Where:
A = accumulated balance after Y years
P = starting principal
APR = annual percentage rate in decimal form
n = number of compound periods per year
Y = number of years
Remember: Credit Cards charge interest daily where n = 365 days/year.
Solve the following:
Paul has a credit card balance of $ 11,719.23 after the first year, not including any penalties.
b) Paul will only need to make the minimal interest payments of $183.33 per month.
c) Paul will need to pay the minimal interest payments that will reduce the initial balance owed.
d) Paul will not need to make the minimal interest payments and then he can pay back the full amount owed.

Answer 1

Compound interest involves earning interest on both the principal and accumulated interest, which can significantly increase the total amount compared to simple interest over time.

Step-by-step explanation:

The concept we are discussing is compound interest, which is a calculation of interest on the initial principal as well as the accumulated interest of previous periods. To find it, you subtract the starting principal (P) from the accumulated balance (A) after a certain number of years (Y), using the provided formula. Using an example of a $100 principal with a 5% annual interest rate compounded annually over 3 years, the future value is $115.76, meaning the compound interest earned is $15.76. This illustrates that over time, especially with larger sums and longer periods, compound interest can accumulate significantly more than simple interest.