Question

2. Suppose you charge $1000 on a credit card that has an APR of 28% compounded daily.a) How much will you owe if you make no payments for one year?|b) How much will you owe if you make no payments for 3 years?

Answer 1

SOLUTION

Step 1:

In this question, we have the principal = $1 000

Rate = 28 %

a) How much will you owe if you make no payments for one year?

Amount after one year =

$\begin{gathered} A\text{ = P }(1+R)^t \\ A\text{ = }1000(1+0.28)^1^{} \\ =\text{ 1000 x 1. 28} \\ =\text{ \ 1, 280} \end{gathered}$

b) How much will you owe if you make no payments for 3 years?

$\begin{gathered} A=P(1+R)^t \\ =1000(1+0.28)^3 \\ =1000(1.28)^3^{} \\ =\text{ 1000 x 2. 097152} \\ =\text{ \ 2097. 152} \\ =\text{ \ 2097. 15 } \end{gathered}$