Question

A credit card had an APR of 15.98% all of last year, and compounded interest daily. What was the credit card's effective interest rate last year?
A.

17.32%


B.

17.20%


C.

16.96%


D.

16.62%

Answer 1

Answer:

Option(B) is the correct answer to the given question.

Step by Step Explanation

We know that

$A\ =\ P \ *(\ 1+\ \frac{r}{n} \ ) ^{nt}$

Here A=amount

r=15.98%=0.1598

n=365

t=1

Putting these values into the equation

$A\ =\ P \ *(\ 1+\ \frac{0.1598}{365} \ ) ^{365}$

$A\ =\ P \ *(\ 1+\ 0.000437) ^\ { 365}$

$A\ =\ P \ *(\ 1.000437 ) ^{365}$

$A\ =1.17288 P$

Now we find the interest

I=$1.17288P\ -P\\=\ 0.17288P\\\ ~ 0.1720P$

Therefore effective interest rate of the last year can be determined by

$\frac{0.1720P}{P}$

=0.1720 *100

=17.20%

Answer 2

Answer:

17.32%

Step-by-step explanation: