Question

A credit card company advertises an APR of 15.3%, compounded daily. What

Answer 1

Answer:

16.52%

Step-by-step explanation:

The effective interest rate is the real interest rate you have to pay on a loan when the compounding effect is considered. The formula to calculate it is:

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

i= interest rate: 15.3%

n= number of compounding periods: 365 as it is compounded daily and a year has 365 days.

Effective annual interest rate= (1+(0.153/365))^365-1

Effective annual interest rate= 0.1652→16.52%

According to this, the effective interest rate is 16.52%.