You are on page 1of 2

# 1. a.

Interest is typically expressed as an annual percentage rate, it is the fee paid for the
privilege of borrowing money. This fee is the price a person pays for the ability to spend money
today that would otherwise take time to accumulate.
b. The meaning of the word principal in lending terminology is amount of money originally
loaned out.
c. Simple interest is calculated only on the principal amount of a loan. Compound interest is
calculated on the principal amount and also on the accumulated interest of previous periods,
and can be regarded as “interest on interest.”
d. When applying for a loan I would rather the lender offer me simple interest other than
compound interest because compound interest you get a set interest and then it adds on to
e. yes you can calculate simple interest by taking P(1+tr).

\$P=principal
r=rate,100%
t years

f. you can calculate compound interest by P(1+r)t
2. A = P(1 +(r/n))^nt where A = the amount, P = the principal, r = the rate of interest, n = the
number of times per year interest is compounded, and t = time in years.
You have just signed up for your first credit card. There is no annual fee. Because you are
young and do not have an established line of credit, your interest rate is high at 22.99%. You
decide to purchase a \$1000.00 64 inch flat screen TV for your apartment so you can host movie
nights with your friends. Your interest compounds daily (as most credit cards do). You do not
make any other purchases and you do not make any payments for one year. How much money
will you owe the credit card company in one year? How much interest did you pay on your
\$1000 principal? (Note:Remember there are 365 days in a year.)
base amount: \$1000.00
interest rate: 22.99%
effective annual rate:25.84%
calculation period: 1 year
year interest is \$258.38, total interest is \$258.38 and the balance is \$1,258.38
3. Credit cards:
Citi simplicity card- 0% Intro APR on Balance Transfers and Purchases for 21 months. After that,
the variable APR will be 12.99% - 22.99% based on your creditworthiness. There is a balance
transfer fee of either \$5 or 3% of the amount of each transfer, whichever is greater. No late fees
- EVER No penalty rate - EVER No annual fee - EVER Save time when you call with fast,
personal help, 24 hours a day.

Chase Freedom-Earn a \$100 Bonus after you spend \$500 on purchases in your first 3 months
from account opening Earn a \$25 Bonus after you add your first authorized user and make a
purchase within this same 3-month period 0% Intro APR for 15 months on purchases and
balance transfers. After the intro period, a variable APR of 13.99-22.99% No annual fee and
rewards never expire as long as your account is open