Question

3. Recently due to the pandemic of COVID-19, John has lost his fulltime job, but still has a part-time job. He is considering to apply for a credit card to pay his daily grocery purchases. He is studying promotion information from CitiBank as below: "Introductory rate of 0% for 18 months from date of credit card initiation. After the introductory period ends, the standard variable APR for purchases will be applied to unpaid introductory balances and new balance transfers. The standard variable APR for purchases is 12% to 24%, based on your creditworthiness. Purchases do not include items returned for credit, balance transfers, cash advances, interest and account fees. Minimum interest charge - $0.50. Fee for foreign purchases – 3% of the U.S. dollar amount of each purchase. Cash advance fee - either $10 or 5% of the amount of each cash advance, whichever is greater. Balance transfer fee – either $5 or 3% of the amount of each transfer, whichever is greater. New card members only. Subject to credit approval. Additional limitations, terms and conditions apply. You will be given further information when you apply.” According to the information above, what is the highest effective annual rate (EAR) John may have to pay for his credit card balance? If his credit card application can be successfully approved. A. 12% B. 24% C. 12.68% D. 26.82% E. 42.58%

Answer 1

Answer Page: .NO Effective Annual Rate (EAR) Given, to 24% The range of standard variable APR for purchases is 12% : 12% is the lowest APR that will be charged on purchases: 24% is highest APR that will get charged purchases. EAR that John will have to pay as follows, For the highest eltective annual orate take on 24 %. APR. 18 EAR = 1 + 24 %. 12 (1 + 0.02) 2 - 1 - - 1.2682 - 1 0.2682 - 26.827 26.82% :highest effective annual rate (EAR) ... Option is correct answer.