Question

Sam is getting ready for a big date when he realizes that he has no money. His roommate, Bill, also has no money, but he has a credit card. Knowing that nobody will let Sam use Bill’s credit card, Sam asks Bill to pull out a cash advance for $120. 0. Bill agrees under the condition that Sam is responsible for all interest that accrues on the cash advance which is a 30% interest rate, compounded monthly. The $120 cash advance is repaid in monthly installments over 5 years. How much should Bill ask Sam to pay in interest for the cash advance? a. $3. 88 b. $112. 80 c. $120. 00 d. $232. 80.

Answer 1

The correct statement is that Bill should ask Sam to pay $407.97 as payment for the cash advance as interest. So, the correct option matching the statement quoted above is none of the above.

Compound interest over such credit carded cash advance will be liable for a whooping interest at the interest rate of 30%. This will be applicable only when such loan is repaid in 5 years.

Cash Advances

• Compound interest is referred to as the payment of interest over the accrued interest, along with such interest which is accrued over the principal amount as well.

• The formula for compound interest calculated is as below,

• $\rm Compound\ Interest= P(1+ \dfrac {r}{n})^n^t$

• Putting the given values in the formula, we can derive,

• $\rm Compound\ Interest= 120(1+\dfrac{0.30}{12})^1^2\ ^x\ ^5\\\\\\\rm Compound\ Interest= 120(1.025)^6^0\\\\\\\rm Compound\ Interest= 527.97$

• Now that we know the formula amount in total, deducting the principal of $120 from $527.97 will be $407.97.

Hence, the correct amount that Sam will have to pay for interest on the cash advance will be $407.97.

To know more about cash advances, click the link below.

https://brainly.com/question/1419299