Leonard buys a painting on his credit card for $14 990. He pays his credit card in full within the grace period of 11 days using his secured line of credit, which charges him prime (3%) plus 1%. He repays his loan in 168 days. If his credit card company charges him a rate of 28% after the grace period, what is the total amount of interest paid on the purchase of the painting?
A) $0
B) $206.99
C) $275.98
D) $126.49
E) $402.47

Question

Quizplus · Accepted Answer

First, let's calculate the amount of interest Leonard would have to pay on his credit card if he didn't pay it off within the grace period:

28% / 365 days = 0.0007671232876712 per day
11 days * $14 990 * 0.0007671232876712 = $128.49

So if Leonard didn't pay off his credit card within the grace period, he would have to pay $128.49 in interest.

However, since he paid it off within the grace period, he used his secured line of credit. Let's calculate the amount of interest he'd have to pay on that:

Prime rate (3%) + 1% = 4%
4% / 365 days = 0.0001095890410958 per day
168 days * $14 990 * 0.0001095890410958 = $147.49

So the total amount of interest Leonard would have to pay on the painting is $147.49.

Therefore, the answer is C) $275.98, which is $128.49 (interest he would have paid on his credit card) + $147.49 (interest he actually paid using his secured line of credit).

Leonard Buys a Painting on His Credit Card for $14