Question

Credit card A has an APR of 27.2% and an annual fee of $96, while credit card B has an APR of 30.3% and no annual fee. All else being equal, which of these equations can be used to solve the principal P for which the cards offer the same deal over the course of a year

Answer 1

Answer: D. P * (1 + 0.272/12)¹² + 96 = P * (1 + 0.303/12)¹²

Explanation:

Credit Card A deal over the course of a year:

Payments are done per month so values need to be converted to monthly figures.

APR per month = 27.2%/12

Period = 1 year * 12 months = 12

= P * (1 + 27.2%/12)¹² + 96

Credit Card B deal over a year

= P * (1 + 30.3%/12)¹²

The Principal that will enable both cards to offer the same deal will therefore be:

P * (1 + 27.2%/12)¹² + 96 = P * (1 + 30.3%/12)¹²