Question

2. 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 6% every six months. Which is the lower​ rate?  ​(Note: Be careful not to round any intermediate steps less than six decimal​ places.) The effective annual rate for your credit card is ___%? The effective annual rate borrowing the money from your​ parents is ___%?​(Round to two decimal​ places.)

Answer 1

EAR=(1+periodic rate)^number of periods-1

The effective annual rate for your credit card is =(1+13%/12)^12-1=13.8032%

The effective annual rate borrowing the money from your​ parents is =(1+6%)^2-1=12.3600%