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. (1 point)
To compare the cost of credit for the two interest rates, we need to calculate the total amount to be repaid for each rate.
For a simple interest rate of 11% on a $400 loan over 2 years:
Interest = Principal * Rate * Time
Interest = 400 * 0.11 * 2
Interest = $88
Total amount to be repaid = Principal + Interest
Total amount to be repaid = 400 + 88
Total amount to be repaid = $488
For a simple interest rate of 13% on a $400 loan over 2 years:
Interest = Principal * Rate * Time
Interest = 400 * 0.13 * 2
Interest = $104
Total amount to be repaid = Principal + Interest
Total amount to be repaid = 400 + 104
Total amount to be repaid = $504
Therefore, the interest rate of 11% has a lower cost of credit. The cost of credit for the 11% rate is $88, while the cost of credit for the 13% rate is $104.