Question

You recently received a letter from Cut-to-the-Chase National Bank that offers you a new credit card...

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%

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

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

If you need any clarification, you can ask in comments.    

If you like my answer, then please up-vote as it will be motivating       

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
A rookie quarterback is negotiating his first NFL contract. He can invest at a 7% annual...
A rookie quarterback is negotiating his first NFL contract. He can invest at a 7% annual interest rate.Payments are guaranteed, and they would be made at the end of each year. Terms of each contract are: $5million in year 1, $3 million in year 2, $1 million in year 3, and $2.5 million in year 4. What is the present value of the contract? (your answer should be in millions of dollars with two decimals and no $ sign) Find...
A credit card company offers you a credit card with Annual percentage rate (APR) of 20%....
A credit card company offers you a credit card with Annual percentage rate (APR) of 20%. Interests are compounded quarterly. What is the Effective Annual Rate (EAR)? A) 20% B) 121% C) 21% D) 21.55% E) 121.55%
last National Bank is sending alumni of universities applications to obtain a credit card with the...
last National Bank is sending alumni of universities applications to obtain a credit card with the name of their university written on it. They state the APR will be 9.9% and the interest will apply to the outstanding debt if not paid by the due date each month. Thus, interest is compounded monthly. However, if you fail to make the minimum payment in any month, your interest rate could increase (without notice) to an APR of 19.99%. Calculate the effective...
Simon recently received a credit card with an 20% nominal interest rate. With the card, he...
Simon recently received a credit card with an 20% nominal interest rate. With the card, he purchased an Apple iPhone 5 for $500. The minimum payment on the card is only $20 per month. If Simon makes the minimum monthly payment and makes no other charges, how many months will it be before he pays off the card? Do not round intermediate calculations. Round your answer to the nearest month. month(s) If Simon makes monthly payments of $60, how many...
1. You want to take a vacation in 4 years and feel you’ll need $8,500 to...
1. You want to take a vacation in 4 years and feel you’ll need $8,500 to do so. If you can earn 5% on your deposits, how much will you need to deposit in each of the next four years to have the needed amount? PMT = 1972.10058   2. What is the effective annual rate on a credit card that states that their APR is 21%, compounded monthly? 23.144% 3. What is the present value of $1,000 to be received...
You take out a mortgage loan from Bank A with the following characteristics: compounding period is...
You take out a mortgage loan from Bank A with the following characteristics: compounding period is monthly loan is for $200,000 APR = 6% life of loan is 30 years this mortgage loan has 2 points What is your true cost of borrowing? That is, what is the effective annual rate on your mortgage loan? Do not round at intermediate steps in your calculation. Report the rate in percent to three decimal places. Group of answer choices 6.742% 6.368% 6.523%...
QUESTION 1 All of the followings are the rights and privileges of a Common Stockholders EXCEPTING:...
QUESTION 1 All of the followings are the rights and privileges of a Common Stockholders EXCEPTING: a. Voting/Proxy Rights b. Right to Dividends c. Residual Right d. Pre-emptive Right e. Right to Interest Payments 10 points    QUESTION 2 Your best friend's parents want to buy a home in the Worcester County, but they don’t know the exact amount of money that they can afford to borrow. They can afford monthly payments of $ 1,800. A friendly bank in Worcester...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT