Lansky Finance Company was charging 1.87% per month on overdue accounts but negative publicity and public pressure made them decide to reduce the rate. What monthly finance charge would result in an annual effective rate of 19.99%?
A) 1.80%
B) 1.67%
C) 1.53%
D) 1.42%
E) 1.37%

Question

Quizplus · Accepted Answer

The monthly finance charge that would result in an annual effective rate of 19.99% is 1.53%. This can be calculated using the formula:(1 + r/n)^n - 1 = EARwhere:r = monthly finance chargen = number of compounding periods per year (12 for monthly)EAR = annual effective ratePlugging in the values given in the question, we get:(1 + r/12)^12 - 1 = 0.1999r = 0.0153 or 1.53%

Lansky Finance Company Was Charging 1