Interest is a concept familiar to most people: every credit card in existence has a term called annual percentage rate (APR), which is an interest rate. Suppose you charged $1,000 to a credit card that has a minimum payment each month equal to the interest owed. Can you figure out how much the interest rate is based on this amount?

The formula for simple interest iswhereIis the amount you will pay in interest,ris the rate at which interest will accrue,Pis the principal (amount borrowed), andmis the number of times the interest is applied.

a. To solve for the interest rate of your credit card, you need to understand which variables in the above formula you have. If your minimum monthly payment is $22 on the $1,000 credit card bill, which variables do you know the values of?

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b. Manipulate the formula so it will calculate the interest rate you are paying instead of the amount of money you are paying.

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c. Now that you have a formula that will give you the interest rate, plug in the values for the problem and solve for that interest rate. Interest rates are usually represented for a time period: over what time period does this rate apply? What would the interest rate be if it were a yearly rate?

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d. Now consider a different situation. Payday loans are a type of loan where you can get money for a future paycheck, typically two weeks in advance. A typical payday loan service might charge $15 for a loan against a paycheck you will receive in two weeks. The interest rate is 10% of the paycheck over that two-week period. Given this information, which variables in the interest formula are known? Develop a formula that will solve for the unknown variable.

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e. Solve for the value of the unknown variable.

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Answer rating: 100% (QA)

a In the given problem we know the values of the principal amount P which is 1000 and the amount of ... View the full answer