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3 years ago

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Madeline's credit card had an APR of 18.96% all of last year, and interest was compounded periodically throughout the year. Whic

h of these statements accurately describes the effective interest rate of Madeline's credit card last year?
A. It was less than 18.96% whether interest was compounded daily or monthly.

B. It was greater than 18.96% whether interest was compounded daily or monthly.

C. It was greater than 18.96% if interest was compounded daily but not if interest was compounded monthly.

D. It was less than 18.96% if interest was compounded daily but not if interest was compounded monthly.

2 answers:

Sauron [17]3 years ago

6 0

Answer:

It was greater than 18.96 whether interest was compounded daily or monthly

Step-by-step explanation:

Charra [1.4K]3 years ago

6 0

Answer:

Option B is correct, that is It was greater than 18.96% whether interest was compounded daily or monthly.

Step-by-step explanation:

Given: APR of Madeline's Credit Card = 18.96 %

We need to find effective Interest rate of Madeline's credit card when compounded daily or compounded monthly.

Formula for Effective Interest is,

$Effective\:Rate=(1+\frac{r}{n})^n-1$

where, r is normal rate and n is number of periods.

When rate is compounded daily,

we have, r = 18.96% and n = 365

$Effective\:Rate=(1+\frac{\frac{18.96}{100}}{365})^{365}-1=20.87\,$ %.

When rate is compounded monthly,

we have, r = 18.96% and n = 12

$Effective\:Rate=(1+\frac{\frac{18.96}{100}}{12})^{12}-1=20.7\,$ %.

Therefore, Option B is correct, that is It was greater than 18.96% whether interest was compounded daily or monthly.

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