Imagine that two friends, Yan and Caden, each buy an iPod touch for $240, and pay with a credit card.When this happens, the credit card company pays Apple, and the friends become indebted to the creditcard company. For every year they don't pay back the debt, the company charges them interest: apercentage of what they owe. The interest rate is called an annual percentage rate (APR), while theamount owed is called a balance.Calculate how much each person would owe over time if neither made any payments to the credit cardcompany, assuming interest is calculated once per year.Balance after...Person APR 0 yearsYan18% 240Caden 36%1 years283.22 years334.1763 yearsBalance after...Person APR 0 years 1 yearsYan18%394.3276 years465.30In reality, credit card companies don't charge interest every year, they charge interest every month. Todetermine the monthly interest rate, divide the APR by 12.Yan has an annual rate of 18%. So Yan has a monthly rate ofCaden has an annual rate of 36%. So Caden B has a monthly rate ofGiven that both Yan and Caden charge $240 initially calculate how much each person would owe over timeif neither made any payments to the credit card company, assuming interest is compounded monthly.%2 years 3 years 6 years Balance after...Person APR 0 years 1 years 2 yearsYan 18%Caden 36%3 years 6 yearsDo you think it matters how often credit card companies charge interest? Explain.Yes it matters because the more often they calculate the interest the higher the amount goes.O No, you pay the same amount of interest regardless of how often they calculate it.If neither friend made any payments for 11 years, how much would the $240 iPod end up costing in total(with monthly compounding)?Yan's total cost (balance after 11 years): $Caden's total cost (balance after 11 years): $

Here, APR of Yan is 18% APR of Caden is 36% Balance due today for both Yan and Caden is $240

Answered: Imagine that two friends, Yan and…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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