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Teaching Since: Apr 2017
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  • MBA,PHD in Psychology
    Northwest Florida State College
    Jun-1992 - May-1997

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    Northwest Florida State College,
    Aug-2006 - Nov-2015

Category > Economics Posted 08 May 2017 My Price 9.00

Jim Norton, an engineering junior,

Jim Norton, an engineering junior, was mailed two guaranteed line-of-credit applications from two different banks. Each bank offered a different annual fee and finance charge.

 

Jim expects his average monthly balance after payment to the bank to be $300 and plans to keep the credit card he chooses for only 24 months. (After graduation, he will apply for a new card.) Jim’s interest rate on his savings account is 6% compounded daily. The following table lists the terms of each bank:

 

Terms

 

Bank A

 

Bank B

 

Annual fee

$20

$30

Finance charge

1.55%

16.5%

 

monthly interest rate

annual percentage rate

 

 

(a) Compute the effective annual interest rate for each card.

 

(b) Which bank’s credit card should Jim choose?

 

(c) Suppose Jim decided to go with Bank B and used the card for one year. The balance after one year is $1,500. If he makes just a minimum payment each month (say, 5% of the unpaid balance), how long will it take to pay off the card debt? Assume that he will not make any new purchases on the card until he pays off the debt.

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Status NEW Posted 08 May 2017 11:05 AM My Price 9.00

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