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you owe $1,000 on your credit card

by Lorraine
(Texas)











































Suppose you owe $1,000 on your credit card and that at the end of each month an additional 1.4708% of the amount you owe is added onto the amount you owe. You have stopped using this credit card and do not have any money to make any payments. The only change to the amount every month is the addition of the interest.

How much will you owe after 6 months?
How much will you owe after 1 year?
How much will you owe after 2 years?

(Show all calculations)

Comments for you owe $1,000 on your credit card

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Aug 11, 2010
word problem: credit card interest
by: Staff

word problem: credit card interest

The question:

Suppose you owe $1,000 on your credit card and that at the end of each month an additional 1.4708% of the amount you owe is added onto the amount you owe. You have stopped using this credit card and do not have any money to make any payments. The only change to the amount every month is the addition of the interest.

How much will you owe after 6 months?
How much will you owe after 1 year?
How much will you owe after 2 years?

(Show all calculations)


The answer:

The formula for calculating compound interest is:

Total Amount Owed = P*(1+i)^N


P is the principle (initial value). In your problem, this is $1000.

The i represents the interest rate for each period of time. In your problem, this is 1.4708% per month. However, this percentage number must be converted to a decimal before it can be used in the formula. To convert 1.4708% to a decimal, simply divide by 100. For your problem, the decimal equivalent is: .014708 per month

N is the number of time periods. In your problem, this will be expressed in months:
6 months
12 months (1 year)
24 months (2 years)

For your calculations, you will need to use a calculator


Calculate how much you will you owe after 6 months:

Total Amount Owed = P*(1+i)^N

Total Amount Owed = 1000*(1+.014708)^6

Total Amount Owed = $1,091.56 (rounded to the nearest penny)


Calculate how much you will you owe after 12 months (1 year):

Total Amount Owed = P*(1+i)^N

Total Amount Owed = 1000*(1+.014708)^12

Total Amount Owed = $ 1,191.50 (rounded to the nearest penny)


Calculate how much you will you owe after 24 months (2 years):

Total Amount Owed = P*(1+i)^N

Total Amount Owed = 1000*(1+.014708)^24

Total Amount Owed = $ 1,419.67 (rounded to the nearest penny)


Thanks for writing.


Staff
www.solving-math-problems.com


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