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Applied Concepts

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Applying Concepts Pt. 3
MATH/220
06/19/2014

Applying Concepts Pt. 3
Team Collect discussed the overwhelming and time-consuming process that is involved in understanding how credit cards compound interest are calculated. Among the factors that were discussed included knowing the advantages of having high credit scores, how the Annual Percentage Rate (APR) works, where interest charges come from, and how compound interest is calculated. Anyone with a credit card should explore various options available from the credit card issuers so that they can get the best value for their money. The credit card holder must determine how much credit card debt they can afford to hold, the monthly payments, and the interest rates charges levied by the card issuers. According to "How Is Interest Calculated?” (2014), “Understanding how interest is calculated is an important approach toward becoming a more educated consumer and using your credit card effectively” (para. 1). Regardless of the choices made by the cardholder, the credit card issuer determines the formula for calculating interest charges. According to “Citi Cards” (2014), “If you pay less than the full balance, an Interest Charge will be added to your account”.
In Team Collect’s example, let us say you have a credit limit of $1,500. On the first day of having the credit card the credit limit is reached. So now you have a balance of $1,500. If nothing else is purchased and no payments are made in six months, how much would we owe if the interest rate is 15% and interest is compounded monthly.
The formula to calculate compound interest is:
A = P1 + rnnt

If we plug in our numbers it would look something like this:
A = 15001 + .151212*.5
P = principal amount (in this case the total amount of credit) r = annual rate of interest (as a decimal) t = amount of time, in years, the amount is deposited or

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