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Open/Closed End Credit Card
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Open/Closed End Credit Card

by Pam Lockett
(Napoleonville, Louisiana, USA)







































It’s time to go shopping! You grab your Best Purchase credit card, which has an annual interest rate of 18%. Assume that you have a previous charged balance of $285.76 (before interest has been applied) on the card. On your shopping trip, you purchased three items: a Blu-ray player, two 4-GB flash drives, and a 19-inch flat-screen television. You purchase all the items on your credit card for a total of $352.18. When the bill comes at the end of the month you decide to pay all of the charges. Answer the following questions, showing any needed calculations. (Round all your answers to nearest hundredth or cent.)

What is the monthly interest rate?
What are the interest charges on the card? (Calculate only on last month’s unpaid balance)
What is the total balance on your card?

Comments for Open/Closed End Credit Card

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Feb 15, 2012
Credit Card Interest
by: Staff


Question:

by Pam Lockett
(Napoleonville, Louisiana, USA)


It’s time to go shopping! You grab your Best Purchase credit card, which has an annual interest rate of 18%. Assume that you have a previous charged balance of $285.76 (before interest has been applied) on the card. On your shopping trip, you purchased three items: a Blu-ray player, two 4-GB flash drives, and a 19-inch flat-screen television. You purchase all the items on your credit card for a total of $352.18. When the bill comes at the end of the month you decide to pay all of the charges. Answer the following questions, showing any needed calculations. (Round all your answers to nearest hundredth or cent.)

What is the monthly interest rate?
What are the interest charges on the card? (Calculate only on last month’s unpaid balance)
What is the total balance on your card?


Answer:

Generally, credit card interest charges are compounded daily.

Since the APR (annual percentage rate) is 18%, the daily interest rate is:

= 18%/365

= 0.0493151 % per day

Because the interest rate is compounded daily, the EAR (effective annual rate) is:

= [1 + (0.18/365)]³⁶⁵ - 1

= [1 + (0.0004931506849)]³⁶⁵ - 1

= (1.0004931506849)³⁶⁵ - 1

= 1.19716424498 - 1

= 0.19716424498

= 19.7 %





You have a previous charged balance of $285.76 (before interest has been applied) on the card.

You purchase all the items on your credit card for a total of $352.18.


What is the monthly interest rate?

Because the interest rate is compounded daily, the effective monthly interest rate (assuming a 30 day month) is:

= [1 + (0.18/365)]³⁰ - 1

= [1 + (0.0004931506849)]³⁰ - 1

= (1.0004931506849)³⁰ - 1

= 1.01490080006 - 1

= 0.01490080006

= 1.49 %




What are the interest charges on the card? (Calculate only on last month’s unpaid balance)


Assuming 30 days has passed since the last statement (which shows a balance of $285.76)

Interest = 0.01490080006 * $285.76

Interest = 4.2580526251456

Interest = $4.26




What is the total balance on your card?


TOTAL CHARGES = BALANCE BEFORE INTEREST + INTEREST + PURCHASES

TOTAL CHARGES = $285.76 + $4.26 + $352.18

TOTAL CHARGES = $642.20




Thanks for writing.

Staff
www.solving-math-problems.com



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