As a college student, John receives a quite a few new credit card offers. This week he received an offer from Nakatomi bank which offers an annual percentage rate of 16.99% to 29.99% based upon credit worthiness. John wants to understand the financial impact of this offer, but since he isn’t sure of his credit rating, he has assumed the following:
If his credit rating is… Then his APR will be…
Excellent 16.99%
Good 23.49%
Poor 29.99%
a. What is the effective interest rate per month for this offer for each of the three possible categories of credit rating?
b. What is the effective annual interest rate for each credit rating category?
c. If John were to charge his Spring Break trip (total cost $2,187) today, and doesn’t make a payment for nine months, how much more would John owe if he had poor credit, then if he had excellent credit?
d. If John decided to save his money in a high yield savings account, rather than spend it on his Spring Break vacation, how much would he have saved in nine months if the investment account earns 3.125% compounded quarterly?