Suppose your credit card issuer states that it charges a 15.00% nominal annual rate, but you must make monthly payments, which a
mounts to monthly compounding. What is the effective annual rate
1 answer:
Answer: 16.08%
Explanation:
The effective annual interest rate simply means the interest rate on a loan that is restated from nominal interest rate.
In the above question, we are informed that it uses 15.00% as the nominal annual rate make monthly payments.
Effective annual rate = (1 + r/m)^m - 1
where,
r = annual nominal interest rate
m = number of compounding periods for the year.
In this case m= 12 since there are 12 months in a year.
The answer has been attached.
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