Question

3) You owe $1,842.66 on a credit card at a 14.5% APR. You pay $250.00 at the beginning of the month and put another $250.00 in a savings account at a 4.0% APR. What is the difference in the amount of interest accrued between the credit card and savings account by the end of the month?

4) Using the information from problem 3, how much interest could you save by putting all $500.00 instead of just $250.00 toward the credit card at the beginning of the month?

Answer 1

1)The difference in the amount of interest accrued between the credit card and savings account is $18.41.

2) Interest we could save by paying $500 instead of $250 is $2.19.

Balance of credit card on which interest will be levied =$1,842.66-$250

Balance of credit card on which interest will be levied =$1592.66

The Interest levied on $1592.66= 1592.66*14.5/100* 1/12

The Interest levied on $1592.66 = $19.24

What is simple interest?

Simple interest is a method to calculate the amount of interest charged on a sum at a given rate and for a given period of time.

Simple interest on $250 for a month= 250*4* 1/12 * 1/100

Simple interest on $250 for a a month=  $0.83

The difference in the amount of interest accrued between the credit card and savings account =  $19.24 - $0.83 = $18.41

Had we paid $500 instead of $250, the balance on which interest would have been levied = $1,842.66-$500 = $1342.66

The Interest levied on $1342.66= 1342.66*14.5/100* 1/12 = $16.22

So, interest saved = $18.41 -  $16.22 =$2.19

Therefore, The difference in the amount of interest accrued between the credit card and savings account is $18.41.

2) Interest we could save by paying $500 instead of $250 is $2.19.

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