Question

Credit card A offers an introductory APR of 7.6% for the first 3 months and a standard APR of 23.4% thereafter, while credit card B offers an introductory APR of 7.9% for the first 3 months and a standard APR of 22.9% thereafter. All else being equal, which of these statements is correct? (Assume all interest is compounded monthly.)

A. Credit card B is the better deal over the course of the first 3 months and over the course of the first year.

B. Credit card B is the better deal over the course of the first 3 months, but credit card A is the better deal over the course of the first year.

C. Credit card A is the better deal over the course of the first 3 months and over the course of the first year.

D. Credit card A is the better deal over the course of the first 3 months, but credit card B is the better deal over the course of the first year.

Answer 1

D. Credit card A is the better deal over the course of the first 3 months, but credit card B is the better deal over the course of the first year.

Step-by-step explanation

An Introductory rate is low rate given by credit card companies to its clients as an incentive for card application. An introductory APR with a 0% offer simply means that a person is not required to pay interest on his or her purchase for a particular period of time. Introductory APR could last from 6 to 12 months. For the first 3 month, card A (7.6%) offers a better deal than card B(7.9%). Over the course of the year, card B(22.9%) offers a better deal than card A(23.4%)