Question

(15 Points!)

Tom has two credit cards and is planning on purchasing a racing bicycle that will cost $450. If Tom charges the bike to one of his credit cards, which card will take the longest to pay off if he only makes the minimum payments? Card A: APR 16%, annual fee: $40 Card B: APR 21%, annual fee: $35

A)Card A because it has a lower APR
B)Card A because it has a higher annual fee
C)Card B because it has a higher APR
D)Card B because it has a lower annual fee

Answer 1

i would say D) because even though it has a higher ARP but it does have a lower annual fee

Answer 2

Answer: A) Card A because it has a lower APR

Explanation:

Since, the card A has 16% of APR and $ 40 as annual fees,

Therefore, the total payment after one year by card A = 16 % of $ 450 + $ 40

= 16 × 4.50 + 40

= 72 + 40

= $ 112

Now, the card B has 21% of APR and $ 35 as annual fees,

Therefore, the total payment after one year by card B = 21 % of $ 450 + $ 35

= 21 × 4.50 + 40

= 94.5 + 35

= $ 129.5

Since, 129.5 > 112

⇒ Card A has the less payment than that of card B, because it has lower APR,

Thus, Option A is correct.