1. Financial mathematics  Compare differences between credit cards and debit cards  Calculate the simple interest for one billing cycle  Express a percentage annual interest rate as a daily interest rate  Interpret credit card statements and carry out related calculations  Create a ‘ledger of spending’  Identify the various fees and charges associated with credit card usage Cambridge University Press 1  G K Powers 2013

Credit cards I – Interest (simple or flat) earned for the use of money P – Principal is the purchases made on the credit card plus the outstanding balance r – Rate of interest per period expressed as a decimal n – Number of time periods A – Amount or final balance 2 Cambridge University Press  G K Powers 2013

Example 1.Richard has a credit card with an simple interest rate of 22% p.a. and no interest-free period. Richard used the credit card to pay for a phone costing $ He paid the credit card account 15 days later. What is the total amount he paid for the phone including interest? 2.Gabriel received a new credit card with no interest-free period and a daily simple interest rate of 0.05%. She used her credit card to purchase clothing for $350 and petrol for $60 on the 20th March. This amount stayed on the credit card for 25 days. What is the total interest charged? 3 Cambridge University Press  G K Powers 2013

Solution Interest charged is $5.13. Total amount paid is $ Cambridge University Press  G K Powers 2013

Credit card statements Credit card statements are issued each month and contain information such as account number, opening balance, new charges, payments, refunds, reward points, payment due data, minimum payment and closing balance. The credit card statement includes the date and cost of each purchase and could be regarded as a ledger. A ledger documents your spending. 5 Cambridge University Press  G K Powers 2013

Example A portion of a credit card statement is shown above. 1.What is the value of the new charges on this statement? 2.How many award points were earned during the period of this statement? 3.What is the minimum payment? 6 Cambridge University Press  G K Powers 2013

Solution The value of the new charges is $ The total award points earned during this period is 460. The minimum payment is $ Cambridge University Press  G K Powers 2013

Fees and charges for credit card usage  Annual card fee – maintaining credit card account  Interest charge – interest charged for retail purchases  Late payment fee – when minimum payment has not been received by the due date  Cash advances – withdrawing cash from the credit card account  Balance transfers – moving balance to another account, often held at another institution 8 Cambridge University Press  G K Powers 2013

Example 1.Toby’s bank charges an annual credit card fee of $390, cash advance fee of $2.45 and late payment fee of $22. What is Toby’s banking costs for the year if he made 60 cash advances and 3 late payment fees? 2.Andrew has a debit of $4600 on a credit card with an interest rate of 16.35% p.a. He decided to transfer the balance to a new card with a 0% balance transfer for 6 months. However, after 6 months the new card reverted to an interest rate of 20.65% p.a. Is Andrew better off after 12 months? 9 Cambridge University Press  G K Powers 2013

Solution 1. Andrew is better off with the new card by $ Toby’s banking costs were $ Old cardNew card 10 Cambridge University Press  G K Powers 2013