Question

A credit card company advertises an APR of 15.3% compounded daily. What is the effective interest rate? Round your answer to two decimal places.

Answer 1

Answer: 16.53%

Explanation:

Given the following :

Annual percentage rate(r) = 15. 3% = 0.153

n = number of compounding periods in a year

p = number of compounding periods rate is required for

Number of days in a year = 365 = n

p = 365

Effective interest rate (E) is given as :

E = [( 1 + (r / n) )^p] - 1

E = [(1 + (0.153 / 365)) ^365] - 1

E = [ (1 + 0.0004191) ^365] - 1

E = [1.0004191^365] - 1

E = 1.1652876 - 1

E = 0.1652876

Effective Interest rate = (0.1652876 × 100)%

Effective interest rate = 16.53%