Determine the annual effective rate of a credit card offering 1.3% monthly.
A) 16.77%
B) 16.47%
C) 16.07%
D) 15.77%
E) 15.47%

Question

Quizplus · Accepted Answer

The annual effective rate (AER) can be calculated using the formula for compound interest: $AER = (1 + r)^n - 1$, where $r$ is the monthly interest rate and $n$ is the number of compounding periods in a year. Given a monthly rate of 1.3%, or 0.013 in decimal form, and 12 compounding periods (months) in a year, the calculation is $AER = (1 + 0.013)^{12} - 1$. This equals approximately 0.1677 or 16.77% when converted to a percentage.

Determine the Annual Effective Rate of a Credit Card Offering