Question

Jake opens a credit card with 18% annual interest compounded monthly. If he charges $800 on the card and never pays it off, how much will he owe the credit card company in 2

years? Round to the nearest cent.

Answer 1

Answer: $1,143.60

Work Shown:

A = P*(1+r/n)^(n*t)

A = 800*(1+0.18/12)^(12*2)

A = 1,143.60224954321

A = 1,143.60

Notes:

• P = 800 is the principal. It is the amount loaned to Jake.
• r = 0.18 is the decimal form of the 18% interest rate
• n = 12 because we're compounding monthly, i.e. 12 times a year
• t = 2 = number of years
• For more information, check out the compound interest formula.