compare a simple interest rate of 11% and a simple interest rate of 13% for a $400 credit card loan that can be paid in full at the end of a fixed loan length of 2 years.
Determine which interest rate has a lower cost of credit. Find the cost of credit.
a The 11% simple interest rate has a lower cost of credit, which is $88
b The 13% simple interest rate has a lower cost of credit, which is $104
c The 13% simple interest rate has the lower cost of credit, which is $504
d The 11% simple interest rate has a lower cost of credit, which is $488
To determine which interest rate has a lower cost of credit, we need to calculate the total amount of interest paid for each rate.
For the 11% simple interest rate:
Interest = Principal * Rate * Time
Interest = $400 * 0.11 * 2
Interest = $88
For the 13% simple interest rate:
Interest = Principal * Rate * Time
Interest = $400 * 0.13 * 2
Interest = $104
Therefore, the 11% simple interest rate has a lower cost of credit, which is $88. The correct option is (a) The 11% simple interest rate has a lower cost of credit, which is $88.