As a College Student, You Probably Receive Many Credit Card

question 133

Multiple Choice

As a college student, you probably receive many credit card offers in the mail. Consider these two offers. The first card charges a 17% APR. An examination of the footnotes reveals that this card compounds monthly. The second credit card charges 16.25% APR and compounds weekly. What is the effective annual rate of the cheaper card?

• A) 17.00%
• B) 17.62%
• C) 16.25%
• D) 18.39%

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Definitions:

WACC

Weighted Average Cost of Capital; a calculation that reflects the cost of a company's financing (debt and equity) weighted by the proportion of each financing source in the overall capital structure.

Tax Shields

Deductions and credits available to taxpayers that lower the total tax liability by reducing taxable income.

Equity Risk

The risk of loss arising from fluctuations in the values of equity investments.

Operating Activities

Business actions that relate to the company's day-to-day functions, contributing to the generation of revenue.