Question

You recently received a letter from Cut-to-the-Chase National Bank that offers you a new credit card that has no annual fee. It states that the annual percentage rate (APR) is 18% on outstanding balances. If the card is billed monthly with monthly compounding, what is the effective annual rate? (round to two decimals)

None of the available choices

1.50%

19.56%

6.00%

17.23%

18.00%

Answer #1

Annual percentage rate (APR) is 18%

Calculating Effective annual rate(EAR) of the stated APR:-

Where,

r = Interest rate(APR) = 18%

m = no of times compounding in a year = 12 (compounded Monthly)

EAR = 1.195618 - 1

**EAR = 19.56%**

**So,** the effective annual rate is 19.56%

**Option B**

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comments. *

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