Question

A bank is offering you an introductory credit card promotion. Your interest for the first year is 8%. But, at the beginning

of the 2nd year your interest rate will go up to 23%. If you have an $1,800 balance on your card throughout both years, what will be the
difference in the monthly interest owed during year 1 and year 2?
O a) $10.80
Ob) $15.66
O c) $22.50
O d) $34.50

Answer 1

• c) $22.50

Step-by-step explanation:

1. Calculate the monthly interest owed during year 1

• Interest for first year: 8%

• The monthly rate is the yearly rate divided by 12: 8% / 12 = 0.08/12

• The monthly interest owed is the monthly rate times the balance: (0.08/12)×$1,800 = $12.00

2. Calculate the monthly interest owed during year 2

• Interest for second year: 23%

• The montly rate is the yearly rate divided by 12: 23% / 12 = 0.23/12

• The monthly interest owed is the monthly rate times the balance: (0.23/12)×$1,800 = $34.50

3. Calculate the difference

• Difference in the monthly interest owed during year 1 and year 2 = $34.50 - $12.00 = $22.50

Hence, the answer is the option c) $22.50