You are considering two ways of financing a spring break vacation. You could put it on your credit card, at 15 % APR, compounded monthly, or borrow the money from your parents, who want an interest payment of 8 % every six months. Which is the lower rate? (Note: Be careful not to round any intermediate steps less than six decimal places.)

Question

Business

Madelyn Cooley

17 January, 02:06

You are considering two ways of financing a spring break vacation. You could put it on your credit card, at 15 % APR, compounded monthly, or borrow the money from your parents, who want an interest payment of 8 % every six months. Which is the lower rate? (Note: Be careful not to round any intermediate steps less than six decimal places.)

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Answers (1)

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Gilbert Merritt · Answer 1

Credit card

Explanation:

The formula for computing the APR is shown below:

= (1 + interest rate) ^time period - 1

For monthly, it is

= (1 + 15% : 12 months) ^12 - 1

= (1 + 0.0125) ^12 - 1

= 16.080000%

Now for the APR for 6 months is

= (1 + 16% : 2 months) ^2 - 1

= 16.640000%

The rate that is given 8% is doubles i. e 16% and the computation is same as before

As we can see that credit card contain the lower rate i. e 16.08% as compare to the money borrowed from the parents