American Express and other credit card issuers must by law print the Annual Percentage Rate (APR) on their monthly statements.If the APR is stated to be 18.00%, with interest paid monthly, what is the card's EFF%?

Question

Quizplus · Accepted Answer

The EFF% is calculated using the formula: EFF% = (1 + APR/n)^n - 1, where n is the number of times interest is compounded in a year. Since interest is paid monthly, n = 12. Plugging in the numbers, we get EFF% = (1 + 0.18/12)^12 - 1 = 0.1956, or 19.56%. Therefore, the best choice is B.

American Express and Other Credit Card Issuers Must by Law