You are paying an effective annual rate of 19.44% on your credit card. The interest is compounded monthly. What is the annual percentage rate on your account?

Question

Quizplus · Accepted Answer

The annual percentage rate (APR) can be calculated from the effective annual rate (EAR) using the formula: EAR = (1 + APR/m)^m - 1, where m is the number of compounding periods per year. Given an EAR of 19.44% and monthly compounding (m = 12), we solve for APR. Rearranging the formula gives APR = m[(1 + EAR)^(1/m) - 1]. Plugging in the values gives APR = 12[(1 + 0.1944)^(1/12) - 1], which approximates to 17.9%.

You Are Paying an Effective Annual Rate of 19