Question

Find the monthly interest payment in the situation described below. Assume that the monthly interest rate is 1/12 of the annual interest rate.

You maintain an average balance of $900 on your credit card, which carries a 15% annual interest rate.

a) $11.25
b) $15.00
c) $18.75
d) $22.50

Answer 1

To calculate the monthly interest payment on a credit card balance, multiply the average balance by the annual interest rate divided by 12. In this case, a $900 balance with a 15% annual interest rate results in a monthly interest payment of $11.25.

Step-by-step explanation:

The student is asking how to calculate the monthly interest payment on a credit card balance with an annual interest rate when the monthly interest rate is derived as 1/12th of the annual rate. To find the monthly interest payment for their $900 average balance on a credit card with a 15% annual interest rate, we use the formula:

Monthly Interest Payment = Average Balance x (Annual Interest Rate / 12)

Plugging in the values:
Monthly Interest Payment = $900 x (0.15 / 12)

= $900 x 0.0125

= $11.25

Therefore, the correct answer is a) $11.25.