Problema Solution
Looking for some furniture for her new apartment, Susan visits the local swap meet in search of something cheap. Knowing that most swap meet vendors will not accept credit cards and that she will not have any money until her next payday, Susan decides to take out a $200 cash advance on her credit card at an interest rate of 32%.
If Susan had no previous balance on her credit card, and she manages to pay off the balance within 1 month, how much will she have to pay in interest?
Answer provided by our tutors
Assuming the annual interest rate is 32% and the interest is compounding monthly we will use the following formula for future value:
F = P (1 + r/n)^t
F = future value
P = $200 Principal value
r = 0.32 or 32% interest rate per year
n = 12 interest periods per year
t = 1 month
Substituting the given values we get:
F = 200 (1 + 0.32/12)^1
F = $205.33
To obtain the interest, we subtract the principal value from the future value:
Interest = $205.33 - 4200
Interest = $5.33
Susan will have to pay $5.33 in interest.