Your credit card company quotes you a rate of 17.9 percent.Interest is billed monthly.What is the actual rate of interest you are paying?

Question

Quizplus · Accepted Answer

The actual rate of interest, also known as the effective annual rate (EAR), can be calculated when the nominal rate (quoted rate) and the number of compounding periods per year are known. In this case, with a nominal rate of 17.9% and monthly compounding (12 periods per year), the EAR can be calculated using the formula: $EAR = (1 + \frac{0.179}{12})^{12} - 1$. This calculation results in an EAR of approximately 19.44%, making option C the correct answer.

Your Credit Card Company Quotes You a Rate of 17