Question

Kyle's current credit card balance is $3,109.87 with a minimum payment of $159.00. Over the next month he spends $532.42. If the APR is 27.99% (billed monthly), what will Kyle's new balance be, with interest? (4 points) $3,404.65 $3,564.54 $3,606.84 $3,789.03

Answer 1

(b) $3564.54

Explanation:

You want the new balance showing on a credit card statement if the APR is 27.99%, the old balance is $3109.87, a payment of $159 was made, and purchases were made totaling $532.42.

Subtotal

Apparently, the new balance is computed by subtracting payments, and adding new charges to the old balance, then computing and adding the finance charge on this sum.

balance before finance charge: $3109.87 -159.00 +532.42 = $3483.29

Finance charge

The finance charge is 1 month's interest at the annual rate:

I = Prt = $3483.29×0.2799×(1/12) = $81.25

New Balance

The new balance is the subtotal above, with the finance charge added:

new balance = $3483.29 +81.25 = $3564.54

Kyle's new balance will be $3564.54.

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Additional comment

This is a very expensive credit card. Not only is the interest rate of 27.99% very high, but also finance charges are charged on new purchase in the month they are purchased.

Some cards these days have interest rates of 12.75% or lower, with no finance charge for purchases made during the month. Some cards offer a rebate of up to 1.5% of purchases, so a net "negative" finance charge if you pay off the card every month.