Question

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.)

Answer 1

Answer:

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