Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
Bartleby Related Questions Icon

Related questions

Question

Your credit card company charges you 1.45 percent per month. What is the EAR on your credit card?

Multiple Choice
A 16.53%
B 18.13%

C 18.86%
D 17.40%
E 19.80%

Expert Solution
Check Mark
Step 1

Answer to above question is OPTION (C) i.e. 18.86%

Formula to calculate Effective Annual Interest rate:

   EAR=(1+i/m)^m-1

   where i=interest rate

             m=frequency of compounding

       

                In the given question Interest rate =1.45% per month

                                 Interest rate per annum = 1.45%*12=17.4% per annum

                               Monthly compounding =12 times

                     

                EAR=(1+i/m)^m-1

                        =(1+17.4%/12)^12-1

                        =1.1886-1

                        =0.1886 OR 18.86%

                        

 

 

 

 

 

 

             

Knowledge Booster
Background pattern image
Finance
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.
Similar questions
Recommended textbooks for you
Text book image
Essentials Of Investments
Finance
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Mcgraw-hill Education,
Text book image
FUNDAMENTALS OF CORPORATE FINANCE
Finance
ISBN:9781260013962
Author:BREALEY
Publisher:RENT MCG
Text book image
Financial Management: Theory & Practice
Finance
ISBN:9781337909730
Author:Brigham
Publisher:Cengage
Text book image
Foundations Of Finance
Finance
ISBN:9780134897264
Author:KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:Pearson,
Text book image
Fundamentals of Financial Management (MindTap Cou...
Finance
ISBN:9781337395250
Author:Eugene F. Brigham, Joel F. Houston
Publisher:Cengage Learning
Text book image
Corporate Finance (The Mcgraw-hill/Irwin Series i...
Finance
ISBN:9780077861759
Author:Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:McGraw-Hill Education