Financial Maths, STD2 2016 HSC 17 MC (Adapted)

A credit card balance of $920 is outstanding for 20 days. Compound interest is charged at 0.041% per day, with no interest-free period.

Which calculation gives the amount of interest charged on this balance?

\(920\times 0.00041\times 20\)
\(920(1.00041)^{20}\)
\(920(1.00041)^{20}-920\)
\(920(1+0.00041\times 20)\)

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\(C\)

Show Worked Solution

C is correct: compound interest \(=\) total owing \(-\) principal \(=920(1.00041)^{20}-920\).

Other options:

A is incorrect: this is simple interest \((Prn)\), not compound interest.
B is incorrect: this gives the total amount owing, not the interest.
D is incorrect: this gives the total owing using simple interest.

\(\Rightarrow C\)