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You are considering two ways of financing a spring break vacation. You could put it on your credit​ card, at 13 % ​APR, compounded​ monthly, or borrow the money from your​ parents, who want an interest payment of 7 % every six months. Which is the lower​ rate?  ​(Note: Be careful not to round any intermediate steps less than six decimal​ places.)

Respuesta :

Answer:

Borrow from credit card has lower EAR

Explanation:

solution

we will apply here EAR formula that is

EAR =  [tex](1+\frac{r}{m} )^{m}-1[/tex]

here r is rate of interest

and m is  compounding frequency

and 13% compounded​ monthly

so

EAR = [tex](1+\frac{0.13}{12} )^{12}-1[/tex]

EAR = 0.1380324816

EAR = 13.80324816 %

and

Borrow from parents at 7% payable every six months

so

EAR =  [tex](1+0.07)^{2}-1[/tex]

EAR = 0.1449

EAR = 14.49 %

so

Borrow from credit card has lower EAR

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