(a) Suppose a credit card company charges a monthly interest rate of 1.8%. What APR must the company report? (Round your answer to the nearest tenth of a percent.) % (b) The phrase annual percentage rate leads some to believe that if you borrow $5000 from a credit card company which quotes an APR of 21.6%, and if no payments are made, then at the end of 1 year interest would be calculated at 21.6% simple interest on $5000. How much would you owe at the end of a year if interest is calculated in this way? (Round your answer to the nearest cent.) $ (c) If interest is compounded monthly (which is common), then the actual amount you would owe in the situation of part (b) is given by $5000 ✕ 1.01812. What is the actual amount you would owe at the end of the year? (Round your answer to the nearest cent.) $
(a) Suppose a credit card company charges a monthly interest rate of 1.8%. What APR must the company report? (Round your answer to the nearest tenth of a percent.) % (b) The phrase annual percentage rate leads some to believe that if you borrow $5000 from a credit card company which quotes an APR of 21.6%, and if no payments are made, then at the end of 1 year interest would be calculated at 21.6% simple interest on $5000. How much would you owe at the end of a year if interest is calculated in this way? (Round your answer to the nearest cent.) $ (c) If interest is compounded monthly (which is common), then the actual amount you would owe in the situation of part (b) is given by $5000 ✕ 1.01812. What is the actual amount you would owe at the end of the year? (Round your answer to the nearest cent.) $
Chapter5: The Time Value Of Money
Section: Chapter Questions
Problem 31P
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Question
Many lending agencies compound interest more often than yearly, and as we noted in Example P.2, they are required to report the annual percentage rate, or APR, in a prominent place on the loan agreement. Furthermore, they are required to calculate the APR in a specific way. If r is the monthly interest rate, then the APR is calculated using APR = 12 ✕ r.
(a) Suppose a credit card company charges a monthly interest rate of 1.8%. What APR must the company report? (Round your answer to the nearest tenth of a percent.)
%
(b) The phrase annual percentage rate leads some to believe that if you borrow $5000 from a credit card company which quotes an APR of 21.6%, and if no payments are made, then at the end of 1 year interest would be calculated at 21.6% simple interest on $5000. How much would you owe at the end of a year if interest is calculated in this way? (Round your answer to the nearest cent.)
$
(c) If interest is compounded monthly (which is common), then the actual amount you would owe in the situation of part (b) is given by $5000 ✕ 1.01812. What is the actual amount you would owe at the end of the year? (Round your answer to the nearest cent.)
$
%
(b) The phrase annual percentage rate leads some to believe that if you borrow $5000 from a credit card company which quotes an APR of 21.6%, and if no payments are made, then at the end of 1 year interest would be calculated at 21.6% simple interest on $5000. How much would you owe at the end of a year if interest is calculated in this way? (Round your answer to the nearest cent.)
$
(c) If interest is compounded monthly (which is common), then the actual amount you would owe in the situation of part (b) is given by $5000 ✕ 1.01812. What is the actual amount you would owe at the end of the year? (Round your answer to the nearest cent.)
$
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