Question

1. Peyton has a credit card with an annual rate of 24.7% compounded monthly. She used the credit card to purchase cleaning supplies in the amount of $189.56. She can pay up to $72 on the

credit card each month. How much total interest will she pay?

Answer 1

Total interest = $3.41

Explanation:

Since she can pay $72 each month we can divide the payments on monthly basis till all the money is paid.

The annual interest rate is 24.7%, so the monthly rate will be 24.7 ÷ 12= 2.058%

For the first month

With payment of $72 the remaining amount will be 189.56 - 72 = $117.56

Interest paid will be 0.02058 * 117.56 = $2.42

Total amount owed now will be 117.56 + 2.42 = $119.98

For the second month another payment of $72 is made

The remaining will be 119.98 - 72 = $47.98

Interest charged will be 0.02058 * 47.98 = $0.99

The amount owed will be 47.98 + 0.99 = $48.97

In the third month she will pay the remaining $47.98 which is within her monthly limit

Total interest paid = Sum of Amount paid each month - Initial amount spent

Total interest = {(72 * 2) +48.97} - 189.56 = $3.41