kayla used her credit card to purchase a new television for $487.89. she can pay off up to $175 per month. the card has an annual rate of 23.5% compunded monthly. how much will she pay in interest?
Accepted Solution
A:
This is quite a multi-layered problem, so I am going to try my best to answer this in a way that makes sense. Compounding interest is basically "interest on interest," so any remaining balances have interest charged on them (in this case, 23.5% every month that there is a balance left on the card. I will bold any interests calculated and use that at the end.
First, let's calculate the remaining balance after the first month's payment of $175: 487.89 - 175 = 312.89
Then, we will calculate the new balance for the next month by calculating the 23.5% interest and then adding it to the total: 312.89 × 0.235 = 73.53 (rounded up) 312.89 + 73.53 = 386.42
Next, we will repeat the first step again: 386.42 - 175 = 211.42
Then, we will repeat step two again, and continue repeating steps 1 and 2 until the balance remaining is 0: 211.42 × 0.235 = 49.68 211.42 + 49.68 = 261.10