Question

Eden opened a credit card at a department store with an APR of 19.07% compounded monthly. What is the APY on this credit card?

Answer 1

APR = Annual Percentage Rate; APY = Annual Percentage Yield.
This is a tough question!!

To get the APY we use the compounding formula (A = P(1+r/n)^nt) and put $1 in for the principal and see what our final amount is at 19.07% after a year.

A = 1(1+.1907/12)^12

A= 1.0159^12

A= 1.2083  This means that we paid 0.2083 on our dollar after a year which means the APY is 20.83%.