A credit card that charges a monthly interest rate of 1.5% has an effective annual interest rate of:
A) 18.0%
B) 19.6%
C) 15.0%
D) 17.50%

Question

Quizplus · Accepted Answer

To calculate the effective annual interest rate, we use the formula:

(1 + monthly interest rate)^12 - 1

Substituting 1.5% as the monthly interest rate, we get:

(1 + 0.015)^12 - 1 = 0.196 or 19.6%

Therefore, choice B is the correct answer.

A Credit Card That Charges a Monthly Interest Rate of 1.5