Question

You receive a credit card application from Shady Banks Savings and Loan offering an introductory rate of .4 percent per year, compounded monthly for the first six months, increasing thereafter to 16.1 percent compounded monthly. Assume you transfer the $5,100 balance from your existing credit card and make no subsequent payments. How much interest will you owe at the end of the first year

Answer 1

$435.63

Step-by-step explanation:

Calculation to determine How much interest will you owe at the end of the first year

First step is to calculate the Face Value of a lump sum, After the first six months

FV = $5,100 [1 + (.004 / 12)]^6

FV = $5,110.21

Second step is to calculate The Face Value of a lump sum in another six months

FV = $5,110.21[1 + (.161 / 12)]^6

FV = $5,535.63

Now let calculate the Interest

Interest = $5,535.63 − $5,100

Interest = $435.63

Therefore How much interest will you owe at the end of the first year is $435.63