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14 October, 17:02

You are considering two ways of financing a spring break vacation. You could put it on your credit card, at 15% APR, compounded monthly, or borrow the money from your parents, who want an 8% interest payment every six months. Which is the lower rate

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  1. 14 October, 20:08
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    The lower rate is when you put it into your credit card.

    Explanation:

    Credit card: rate = (1 + 15%/12) ^12 - 1

    EAR = 16.08%

    Parents loan = (1 + 8%) ^2 - 1

    EAR parents = 16.64%

    Therefore, The lower rate is when you put it into your credit card.
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