Thomas is trying to decide which credit card to apply for. He has just received some advertising from several large credit card companies, some of which feature low introductory rates. He has estimated that, based on his good credit rating, he could apply for any of the credit cards being offered. Credit card A has a $29 annual fee and advertises the relatively low interest rate of 10.5% (compounding monthly). A $2.50 fee is charged for each cash advance, plus the applicable interest charges. Credit B has no annual fee and advertises a 19.5% interest rate (compounding monthly) on purchases and cash advances. Credit card C advertises an introductory promotional interest rate of 5.9% (compounding monthly) on cash advances and balance transfer for the first five months, if you make your minimum monthly payments on time. The regular annual interest rate is 16.99% (compounding monthly) on purchases, and the regular annual interest rate is 18.99% (compounding monthly)on cash advances. For all three credit cards, interest will not be assessed if the monthly statement amount is paid in full by the payment due date and no cash advances have been taken during the billing period. If the new balance is not paid in full, interest will be charged (1) on the outstanding balance from the statement closing date and (2) on future purchases from the day the purchases are posted to the account. On cash advance transactions, interest is always charged from the date the cash advance is taken. Currently, Thomas has a credit card with a major Canadian department store. For this card, D, there is an outstanding balance of $1000. Its annual interest rate ( compounding monthly) is 28.88%. If he receives one of the other three cards, he would transfer the department store credit card balance to the new card.

Questions:

1. Thomas maintains an average daily balance of $1000 for the first year, based solely on purchases and balance transfers. For each of the four credit cards,

a). Calculate the interest charge and fee that would have to pay over a twelve-month period.[ 4 marks]Hint: the monthly balance is always $1000.00 so calculate the interest charged in one month and multiply after by 12 months.

b). determine the effective annual rate of interest over the 12-month period  

c). decide which credit card he should choose.   

2. For the credit card C, if the introductory interest rate fell to 3.9% ( compounding monthly)and the regular annual interest rate ( compounding monthly) rose to 18.99% on purchases, what would the effective annual rate of interest be over 12-month period? 

3. If you have credit card, how do its rates and conditions compare with those of the cards describe above?