Question

A customer uses a store credit card to purchase a boat for $10,500. The store credit card offers an annual interest rate, compounded continuously, of 18.99% with no payments due for the first two years. If no payments are made for the two years, what will be the balance on the card, rounded to the nearest penny?

$12,679.59
$12,695.85
$15,311.62
$15,350.92

Answer 1

(d) $15,350.92

Explanation:

You want to know the balance in an account that accrues 18.99% interest compounded continuously for 2 years, if the initial balance is $10,500.

Compound interest

The value of an account earning interest compounded continuously is ...

A = Pe^(rt)

for principal P earning rate r for t years.

The balance on the credit card will be ...

A = $10500·e^(0.1899·2) ≈ $15350.92 . . . . choice D

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