Question

You are offered two credit cards. The first is a credit card (CARD A) that has an APR of 24.99%. You are also offered a card (CARD B) that has 11.99% interest, but charges $109 annually. You plan to carry a balance forward of about $350 each month. Which card that was offered is a better card? Show work.

Answer 1

Solution:
	Card A is better out of the two cards offered
Working Notes:
	Each month carry forward balance $350 means average outstanding balance during the year is $350.
	The card which charges less in total annual expense for the will be better.
	CARD A
	Total annual charge = average outstanding balance x Interest rate + Annual fees
	Total annual charge = $350 x 24.99% + 0
	Total annual charge = $87.465 + 0
	Total annual charge = $87.47
	CARD B
	Total annual charge = average outstanding balance x Interest rate + Annual fees
	Total annual charge = $350 x 11.99% + 109
	Total annual charge = $41.965 + 109
	Total annual charge = $150.965
	Total annual charge = $150.97
Hence,	Total annual expense of Card A will be lesser in comparison to Card B if average outstanding balance will be $350.
	Card A is better out of the cards offered
Notes:	APR & interest rate both are annual interest rate .
Please feel free to ask if anything about above solution in comment section of the question.