(1 point)
Imagine you put the $300 in a savings account earning 3.0% APR instead of using it to pay down your credit card as in Problem 3. What is the difference between the interest your savings account would earn that month vs. the interest that would accrue on your credit card that month if you didn't use the $300 to pay it down?
To calculate the interest earned in the savings account, we multiply the initial amount ($300) by the APR (3%) and divide by 12 months:
Interest earned in savings account = $300 x 3%/12 = $300 x 0.0025 = $0.75
To calculate the interest accruing on the credit card, we first need to determine the monthly interest rate. Assuming the credit card has an APR of 20%, the monthly interest rate would be 20%/12 = 1.67%.
Interest accrued on credit card = $300 x 1.67% = $300 x 0.0167 = $5.01
Therefore, the difference between the interest earned in the savings account and the interest accruing on the credit card would be:
$5.01 - $0.75 = $4.26
So, the difference is $4.26.