Question

Ken wants a $1,000 TV/sound system. He can't afford that amount, so he uses a credit card with 20% annual interest. If he only pays the interest each month on that credit card debt, about how much will he pay in interest in 4 years?

Answer 1

He will pay $800 in interests in 4 years.

Step-by-step explanation:

The TV and sound system cost $1,000.

The annual interest is 20%. So the monthly interest is approximately 20%/12=1.667%.

The first month he will have a debt equal to the capital plus interest:

`D=C+I\\\\C=1,000\\\\I=C\cdot i=1,000*0.01667=16.67`

If Ken only pays the interest of the debt and nothing of the capital, he will be every month starting with the same debt (the capital, $1,000).

So, he pays the interest every month. This accounts for $16.67 each month.

In 4 years, we have 4*12=48 months.

The total amount of interest he pays is:

`P=48*I=48*16.67=800`

He will pay $800 in interests in 4 years.