Question

A consumer charges P dollars on a credit card at an annual interest rate of 26%,

compounded semi-annually. With the consumer only paying the interest each month, the

total amount owed after 5 years is $3,024.56. What is the original amount the consumer

arged on the card, P, to the nearest dollar?

Answer 1

the original amount is $1,642

Explanation:

The computation of the original amount is shown below:

As we know that

Future value = Present value × (1 + rate of interest)^number of years

So,

Present value = Future value ÷ (1 + rate of interest)^number of years

= $3,024.56 ÷ (1 + 0.26 ÷ 2)^5

= $1,642

Hence, the original amount is $1,642