Question

A credit card had an APR of 18.78% all of last year and compounded interest daily. What was the credit card's effective interest rate last year?

Answer 1

Answer:

20.65%

Step-by-step explanation:

Formula to calculate effective interest rate :

Effective interest rate $=(1+\frac{r}{n})^n-1$

where r = Rate of interest = 18.78% = 0.1878

           n = number of compounding period = 365

Now put the values into formula

$=(1+\frac{0.1878}{365})^365-1$

$=(1+0.000515)^{365}-1$

$=1.000515^{365}-1$

= 1.206534 - 1

= 0.206534

= 20.65%

Last year Effective interest rate was 20.65%.

Answer 2

Effective interest rate
R=(1+0.1878÷360)^(360))−1)*100
R=20.65%