The Brick store credit card quotes a rate of 1.75% per month on the unpaid balance. Calculate the effective rate of interest being charged.

Question

Quizplus · Accepted Answer

The effective annual rate (EAR) can be calculated using the formula: EAR = (1 + i)^n - 1, where i is the monthly interest rate and n is the number of periods in a year. Here, i = 0.0175 (1.75%) and n = 12. So, EAR = (1 + 0.0175)^12 - 1 ≈ 0.2314 or 23.14%.

The Brick Store Credit Card Quotes a Rate of 1