Suppose your credit card issuer states that it charges a 15.00% nominal annual rate.If you must make monthly payments,which amounts to monthly compounding,what is the effective annual rate?
A)15.27%
B)16.08%
C)17.72%
D)18.61%

Question

Quizplus · Accepted Answer

The effective annual rate formula for monthly compounding is (1+(nominal annual rate/12))^12 - 1. Putting in the numbers, we get (1+(0.15/12))^12 - 1 = 0.1608 or 16.08%. Therefore, the answer is B) 16.08%.

Suppose Your Credit Card Issuer States That It Charges a 15.00