Related questions
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%
Answer to above question is OPTION (C) i.e. 18.86%
Formula to calculate Effective Annual Interest rate:
where iinterest rate
mfrequency of compounding
In the given question Interest rate 1.45% per month
Interest rate per annum 1.45%*1217.4% per annum
Monthly compounding 12 times
(117.4%/12)^12-1
1.1886-1
0.1886 OR 18.86%
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