Quantitative Assignment - Basic

Table of Contents

Introduction 2

Skewness of Interest Rate Data 3

Pie Chart and Box Plot вЂ" Interest Rate Data 4

Interest Rate compared to Application fee 5

Interest Rate compared to Annual fee 6

Interest Rate compared to Rewards Program 8

Interest Rate compared to Financial Institution Type 10

Interest Rate compared to Interest Free Days 11

Conclusion 12

Appendix вЂ" Data Tables 13

Introduction

Australians have a combined credit card debt of over 40 billion dollars that continues to rise. (http://www.theage.com.au/articles/2004/10/23/1098474925892.html?oneclick=true) Accessed 01/09/07

There are many credit cards on the market that are issued to the public from banks and other financial institutions, throughout Australia.

This research paper aims to anaylise the data that has been presented to determine if there are any relationships between the interest rate of a credit card compared to a number of different variables, to provide New Bank with the highest level of information to make informed decisions involving their strategic planning. There will be many different quantitative analysis techniques used to interpret this data set, to find out if there are any variables that share a relationship with the interest rate of a credit card.

Variables that will be compared include;

- Application Fee

- Annual Fee

- Rewards Program

- Financial Institution Type

- Interest Free Period

Graph 1.0

As you can see by looking at Graph 1.0, there is quite a large spread over the interest rate, with two noticeable areas where the majority of credit cards lie. Please also refer to the frequency table in the appendix of this report.

There tends to be a large proportion around the 9.5% to 10% area, and another large proportion around the 17.5% to 18% area. By looking at this result it can be assumed there are two major categories for credit cards.

- Credit cards offering low interest rates and little extras to consumers who want a no frills credit card

- A credit card with a higher interest rate that offers consumers a higher level of benefits and rewards programs.

The mean interest rate in this data set is 15.077%, with the median lying at 16.74%, not too far off from the mean. The mode for this data set is 18, with the range for this set being 11.68%.

Graph 2.0

The interest rate data has a negative skew.

The standard deviation of the data set is 3.57.

With regards to any outliers, there are no results that are interpreted to be outliers as they are spread evenly throughout the data set.

The range of this data set is 11.68, which is a large spread for credit cards, leaving a large choice for positioning, with regards to interest rate in this market for your financial products.

Please refer to Graph 3.0 for a Pie Chart representation of the interest rate distribution pictured below.

Graph 3.0

Q2 16.745

MIN 7.72 MAX 19.4

Q1 11.49 Q3 17.99

Graph 4.0 Box Plot of Interest Rates

INTEREST RATE COMPARED TO APPLIATION FEE

Graph 5.0

As you can see by Graph 5.0, nearly all of the credit cards charge no application fee, with only a few (13 out of 312 credit cards) that do charge an application fee.

With reference to this data, there does not seem to be any relationship to the interest rate of a credit card and the amount of the application fee charged.

The important point to note is that most credit cards do not charge a application fee.

INTEREST RATE COMPARED TO ANNUAL FEE

The relationship between the interest rate of a credit card and the annual fee charged by the bank or financial institution will now be studied.

Graph 6.0

As you can see by the above graph 6.0, there is a noticeable trend with the interest rate and the annual fee charged. As the annual fee increases, so does the interest rate on that credit card. I would suggest that this is due to “Membership Rewards” credit cards, with a high interest rate and annual fee that offers products and services that the consumer can benefit from, and in turn increases consumer loyalty. The average annual fee is quite low at $61.04 per annum.

The interest rate compared to the annual fee has a positive linear