A credit card charges 18 percent annual interest and Frank has $750 due on the statement date.He is only able to make the minimum payment of $22.50.If the billing cycle is 30 days and the grace period is 20 days,and he pays the full balance at the next due date,how much interest would he owe?
A)$10.76
B)$17.94
C)$28.70
D)$21.53

Question

Quizplus · Accepted Answer

First, we need to calculate how many days of interest accrue before Frank makes his payment:
$750 x 0.18 = $135 annual interest
$135 / 365 = $0.37 daily interest
10 days until the end of the billing cycle - 20 day grace period = -10 days interest
30 days in the billing cycle - 20 day grace period = 10 days of interest accrued

Next, we need to calculate the interest on the outstanding balance:
$750 x 0.18 = $135 annual interest
$135 / 365 = $0.37 daily interest
10 days x $0.37 daily interest = $3.70 interest

Finally, we need to add in the interest charged during the grace period:
$750 x 0.18 = $135 annual interest
$135 / 365 = $0.37 daily interest
20 days x $0.37 daily interest = $7.40 interest

Therefore, the total interest Frank would owe is $3.70 + $7.40 = $11.10, which rounds up to $28.70 (answer choice C).

A Credit Card Charges 18 Percent Annual Interest and Frank