A credit card company charges its customers an annual interest of 21.0% on the outstanding monthly balance.The effective annual rate for the customer will be:

Question

Quizplus · Accepted Answer

Since the interest is charged monthly, we need to use the formula for calculating the effective annual rate,
Effective annual rate = (1 + Monthly interest rate)^12 - 1
= (1 + 0.21/12)^12 - 1
= 0.2314 or 23.14%
Hence, the best choice is option C.

A Credit Card Company Charges Its Customers an Annual Interest