Your credit card has a quoted rate of 18.5 percent compounded daily.What is the effective annual rate? (Assume 360 days a year.)
A) 66.60%
B) 20.32%
C) 51.39%
D) 18.50%

Question

Quizplus · Accepted Answer

The effective annual rate (EAR) can be calculated using the formula: EAR = (1 + i/n)^(n*t) - 1, where i is the nominal rate (0.185), n is the number of compounding periods per year (360), and t is the time in years (1). Plugging in the values, EAR = (1 + 0.185/360)^(360*1) - 1 ≈ 0.2032 or 20.32%.

Your Credit Card Has a Quoted Rate of 18