Question

Hello, I am a little confused about this question. I do not understand what the question is asking for.

Answer 1

Given -

Card A charges: 0% interest for the first year, and then 0.8% interest compounded continuously after that.

Card B charges: 0.7% compounded continuously.

Purchase Amount = $500

Payment Made after = 2.5 Years

To Find -

Which Card to choose and the final amount=?

Step-by-Step Explanation -

To find the total amount of interest compounded continuously we use the formula:

`M\text{ = C}* e^((r* t))`

Where,

C = Initial Amount

r = Rate of Interest

t = Time

Now,

Since the total amount you have to pay for the purchase on credit card A is lower, it's the best option.

Putting Values in the formula for card A, we get:

`\begin{gathered} M\text{ = 500}* e^((0.8*1.5)) \\ M\text{ = 506.04} \end{gathered}`

Final Answer -

Option (c): Card A , $506.04