Question

1. Yuliya's credit card had balances of $800 for 15 days, $600 for 5 days, and $650 for 10 days. Assume an annual interest rate of 18 percent, 30-day billing cycle and 20-day grace period. How much is the interest charge using the average daily balance method, if the credit card gets paid off five days after the statement due date? (Show your calculations)

2. Del Monte bought a new car for $38,000 with a loan that will be amortized over five years. The best interest rate he got from his bank for the loan was 2.0 percent compounded annually. What is Del's monthly car payment? How much interest was paid in the first car payment? How much interest will be paid over the entire life of the car loan? (Show your calculations)

Answer 1

1). The balance is paid 5 days after due date so finance charge will be there.

Average daily balance = total balance/billing cycle = ((800*15)+(600*5)+(650*10))/30 = 716.67

Finance charge = average daily balance*APR*billing cycle/365 = (716.67*18%*30)/365 = $10.60

2).PV = 38,000; N = 5*12 = 60; rate = 2%/12 = 0.167%, solve for PMT.

Monthly payment = 666.05

Interest paid in the first payment = principal*interest rate = 38,000*2%/12 = 63.33

Total amount paid over life of the loan = monthly payment*number of payments = 666.05*60 = 39,963.29

Total interest paid = total amount - principal = 39,963.29 - 38,000 = 1,963.29