What is the effective annual interest rate on a credit card with an interest rate of 15% per year, compounded monthly?
A)15.0%
B)16.1%
C)17.8%
D)18.3%

Question

Quizplus · Accepted Answer

The effective annual interest rate (EAR) can be calculated using the formula EAR = (1 + i/n)^(n*1) - 1, where i is the annual interest rate and n is the number of compounding periods per year. For a 15% interest rate compounded monthly, i = 0.15 and n = 12. Plugging these values into the formula gives EAR = (1 + 0.15/12)^(12*1) - 1 ≈ 0.16075 or 16.1%.

What Is the Effective Annual Interest Rate on a Credit