Determine the annual nominal rate of a credit card charging 2.3% effective rate based on monthly compounding.
A) 24.62%
B) 25.52%
C) 26.42%
D) 27.32%
E) 28.22%

Question

Quizplus · Accepted Answer

The effective annual rate is given by the formula (1 + r/n)^n - 1, where r is the nominal annual rate and n is the number of compounding periods per year. In this case, r = 2.3% and n = 12, so the effective annual rate is (1 + 0.023/12)^12 - 1 = 24.62%.

Determine the Annual Nominal Rate of a Credit Card Charging