Question

If your credit card has an APR of 13.7 and the interest is compounded weekly with monthly payments, what is the effectlive monthly interest rate (in %)?

Answer 1

Hello

APR is Annual Percentage rate i.e. 13.7%

Effective rate of interest is calculated with the help of this formula

r= (1+i/n)^n-1

Where

r = Effective rate of interest

i= Annual percentage rate - given

n = the number of compounding period per year

So in our example their will be 52 periods because we have 52 weeks in a year

By putting given input

r= (1+.137/52)^52-1

= (1.002634615384615)^52-1

= 1.146622-1

= .146622/52 or 14.66%/52 rate of interest weekly i.e 0.281965385

and for monthly rate of interest

= 14.18%

Thanks