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The interest rate of a credit card company is 0.5% per month. Richard makes a purchase...

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steve1234 | Student, Undergraduate | Salutatorian

Posted September 23, 2013 at 2:17 PM via web

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The interest rate of a credit card company is 0.5% per month. Richard makes a purchase of $1000 and makes his payment after 14 months. What is the total amount due.

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justaguide | College Teacher | (Level 2) Distinguished Educator

Posted September 23, 2013 at 2:22 PM (Answer #1)

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The interest rate applicable for the credit card is 0.5% per month. Richard makes a purchase of $1000 and makes the payment on his card after 14 months. Assume there are no additional charges for non-payment of dues and Richard can pay the entire amount with interest after 14 months.

The amount due after 14 months is equal to:

`1000*(1 + 0.5/100)^14 `

= `1000*1.005^14`

 = 1072.32

The amount due after 14 months is $1072.32

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steveschoen | College Teacher | (Level 3) Assistant Educator

Posted September 23, 2013 at 2:33 PM (Answer #2)

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Hi, Steve, First, we need to find the annual percentage rate. If one month is at 0.5%, then for the year, it would be at: 0.5*12 = 6% Then, we follow a formula for final balance of an account: F = P*(1+r)^t F = final value P = present value, or principal r = rate t = time in years We are given $1000 for P. We have 6%, which would be 0.06. For the time, 14 months = (14/12) years = 7/6. Plugging these values in: F = 1000*(1+0.06)^(7/6) = $1070.34

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