# If a credit card company charges 2% per month, how much would a person have to pay in interest for an amount of \$1000 pending for a year at the end of the year. As some of the student answers point out, the credit card company charges 2% per month as compounded interest. This means that at the end of each month, the interest of 2% is taken not of the original principal (\$1,000), but the amount owed at the end of the month...

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As some of the student answers point out, the credit card company charges 2% per month as compounded interest. This means that at the end of each month, the interest of 2% is taken not of the original principal (\$1,000), but the amount owed at the end of the month (principal + accumulated interest). This results in the higher total interest being charged.

The formula for amount owed at the end of n = 12 months, if the interest rate is r = 2% = 0.02 per month, compounded monthly, is

A = P(1 + r)^n, where P is the principal: P = \$1,000.

A = 1000(1+0.02)^12 = 1,268.24 (rounded to the nearest cent).

The amount owed is \$1,268.24, so the interest is the difference between amount owed and the principal:

I = A - P = \$1,268.24 - \$1,000 = \$268.24.

The person would have to pay \$268.24 in interest.

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