can u help me on my homework. it is a project and my parents told me how to do it but im not sure if they are correct. so the question goes like this: dulani has a new credit card. it says: you can get cash advances wherever you are. whenever you want. also if you pay off your balance in full each month for a small transaction fee, the cash is interest free. (see important information on reverse side. On reverese side it says:
cash advance transaction fee:
$500.01 to $1000.00-2%;
$1000.01 or more -1.5%;
Annual percentage rater for cash advances 19.8%.
First consider the $450 cash advance. What I understand is that you can get the $450 two different ways. One is to borrow it for one year at 19.8%. If this is your choice then at the end of the year you owe $450 plus 0.198*$450 = $89.10.
The second option is to take the monthly advance each month with no interest charge but a cash advance transaction fee. For $450 this transaction fee is 2.5%, that is 0.025*$450 = $11.25. If you do this every month then you pay 12*$11.25 = $135 for the year. The question now is "What percentage of $450 is $135?" That is
Now try it for a $20 cash advance. 2.5% of 20 is $).50 so you have to pay the minimum charge of $2. In this case I got the annual interest rate to be 120%.I hope this helps,