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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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  1. 17 January, 05:24
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    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
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