Show the full excel table for part (c) ST4.1 Anita Wu, an engineering junior, re

Question

Show the full excel table for part (c) ST4.1 Anita Wu, an engineering junior, received two guaranteed line-of-credit applications from two dif- ferent banks. Each bank offered a different annual fee and finance charge. Anita expects her average monthly balance after payment to the bank to be $300 and plans to keep the credit card she chooses for only 24 months. (After graduation, she will apply for a new card.) Anita's interest rate on her savings account is 6% compounded daily. Table ST4.1 lists the terms of each bank:

Explanation / Answer

Bank A:

  Annual Fee - $20

Interest Rate per month - 1.55%

Bank B:

Annual Fee - $30

Interest Rate per annum - 16.5%

Interest Rate per month = 16.5/12 = 1.375%

Balance after payment =$300

Time period = 24 months

Compounded daily interest rate =6%

(a) BANK A :

   ia =(1+0.0155)12 - 1 =20.27% per year

BANK B :

ia =(1+0.165/12)12 - 1 =17.80% per year

(b) given,

i=6%/365 =0.01644% per day

we need to find the total cost of credit card usage for each bank over 24 months.So we need to find the effective interest rate per payment period.(considered 30 days in a month)

i=(1+0.0001644)30 -1 = 0.494%

Monthly Interest Payment :

   BANK A : $300(0.0155) =$4.65 per month

BANK B : $300(0.165/12)=$4.125 per month

assuming $300 remaning balance will be paid off at the end of 24 months.

BANK A:

Principal= $20+$4.65(P/A,0.494%,24) + $20(P/F,0.494%,12)

=$143.85

BANK B:

Principal= $30+$4.125(P/A,0.494%,24) + $30(P/F,0.494%,12)

= $163.85

Select Bank A

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