Question

(Cash Versus Financing MC)

A primary credit card holder's card has an APR of 11.99%. The current monthly balance, before interest, is $9,768.26. The cardholder makes a payment of $350 the first 11 months and then pays off the balance at the end of the 12th month. How much interest did the credit card holder pay?

$166.83
$999.09
$269.85
$462.53

Answer 1

To calculate the total interest paid, we first need to determine the average daily balance for the 12 months, as interest is typically calculated based on the average daily balance.

Step 1: Calculate the total payments made in the first 11 months.
Total payments made = $350 * 11 months = $3850

Step 2: Calculate the remaining balance after the 11 monthly payments.
Remaining balance = $9768.26 - $3850 = $5918.26

Step 3: Calculate the average daily balance for the 12 months.
Average daily balance = (total balance for the month - payment made) * number of days in the month
Average daily balance = [(9768.26 - 3850) * 11 months + 5918.26 * 1 month] / 12 months

Step 4: Calculate the total interest paid using the average daily balance and APR.
Total interest paid = Average daily balance * APR * (1 year/365 days)

Plugging in the numbers:
Total interest paid = $999.09

Therefore, the credit card holder paid $999.09 in interest over the course of the year.

Answer 2

great