Your credit card has a quoted rate of 18.5% compounded daily.What is the effective annual rate? (Assume 360 days a year.)
A)66.60%
B)20.32%
C)51.39%
D)18.50%

Question

Quizplus · Accepted Answer

To find the effective annual rate, we use the formula:
(1 + (quoted rate/n))^n - 1
where n is the number of times the interest is compounded annually. In this case, the interest is compounded daily, so n = 360.

Plugging in the values, we get:
(1 + (0.185/360))^360 - 1 = 0.2032 = 20.32%

Therefore, the effective annual rate is 20.32%. The best choice is B.

Your Credit Card Has a Quoted Rate of 18