Many department stores charge 2.4% per month on overdue accounts. What is the effective annual rate in this situation?
A) 26.8%
B) 32.9%
C) 25.6%
D) 31.8%
E) 28.8%

Question

Quizplus · Accepted Answer

The effective annual rate (EAR) can be calculated using the formula: EAR = (1 + periodic rate)^n - 1, where the periodic rate is 0.024 (2.4% per month) and n is 12 (months in a year). EAR = (1 + 0.024)^12 - 1 = 0.329 or 32.9%.

Many Department Stores Charge 2