Question

2. Lucy opens a savings account with $300 that pays 2.45% interest compounded quarterly.

Part A. Write an equation to represent the balance of Lucy's saving account after tt years.
Part B. How much money will be in Lucy's savings account after 15 years?
3. Felipe signs up for a new airline credit card that has 24% annual interest rate. If he doesn't pay his monthly
statements, interest on his balance would compound daily. If Felipe never pays his statements for a full year, what
would be the actual percentage rate he would pay the credit card company?

Answer 1

Part A: The formula for the future value of an investment with compound interest is given by:

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

Where: A = the future value of the investment P = the principal investment amount r = the annual interest rate (as a decimal) n = the number of times the interest is compounded per year t = time in years

For this situation, P = $300 r = 2.45% = 0.0245 (since the interest rate is given as an annual rate, we need to divide it by 100 to convert it to a decimal) n = 4 (since interest is compounded quarterly) t = time in years

Therefore, the equation to model this situation is:

A = 300(1 + 0.0245/4)^(4t)

Part B: To find the value of the account after 15 years, we can simply substitute t=15 into the equation:

A = 300(1 + 0.0245/4)^(4*15) = $476.78

Therefore, the amount of money in the account after 15 years is $476.78.

To calculate the actual percentage of interest that is charged when interest is compounded daily, we can use the formula for compound interest:

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

Where: A = the amount of money owed after one year P = the initial amount owed r = the annual interest rate (as a decimal) n = the number of times the interest is compounded per year t = time in years

In this case, Felipe didn't pay his monthly statements, so we can assume that the balance owed increased each day. Therefore, we should use n = 365 (the number of days in a year) in the formula. Also, since r = 24%, we should use r = 0.24 in the formula. Finally, t = 1, since we are looking for the amount owed after one year.

Using the formula, we get:

A = P(1 + r/n)^(nt) = P(1 + 0.24/365)^(365*1) = P(1.0028)^365 ≈ P(1.34)

Therefore, if Felipe doesn't pay his statements for a full year, the actual percentage he gets charged is approximately 34% (or 0.34 as a decimal).

Answer 2

if Felipe never pays his statements for a full year, he would end up paying an actual percentage rate of approximately 471.7% per year (4.717 times the initial balance).

Explanation:

Part A:

Let P be the principal amount (initial deposit) of $300

Let r be the annual interest rate of 2.45% = 0.0245

Since the interest is compounded quarterly, we need to divide the annual interest rate by 4 to get the quarterly rate:

i = r/4 = 0.0245/4 = 0.006125

Let n be the number of quarters in t years. Since there are 4 quarters in a year, we have:

n = 4t

The formula for compound interest is:

A = P(1 + i)^n

Substituting the given values, we get:

A = 300(1 + 0.006125)^(4t)

Part B:

We want to find the balance in Lucy's savings account after 15 years, so we substitute t = 15 into the equation:

A = 300(1 + 0.006125)^(4t)

A = 300(1 + 0.006125)^(4×15)

A = 300(1.006125)^60

A ≈ $464.25

Therefore, Lucy's savings account will have approximately $464.25 after 15 years.

If Felipe never pays his statements for a full year, the interest would compound daily, so we need to use the formula for daily compounded interest, which is:

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

where:

P is the principal (starting balance) on the credit card

r is the annual interest rate (24%)

n is the number of times the interest is compounded per year (365 for daily compounding)

t is the time in years (1 year)

Substituting the values, we get:

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

A = P(1 + 0.24/365)^(365×1)

A = P(1.0006575)^365

A ≈ 4.717P

Therefore, if Felipe never pays his statements for a full year, he would end up paying an actual percentage rate of approximately 471.7% per year (4.717 times the initial balance).