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%

Answer: 19.56%

Explanation:

Effective Rate of Return is the rate that takes into account, the compounding influence of interest rates in a given period.

It is calculated with the formula,

= (1 + r/n) ^ n - 1

Where

r = APR

n = no of compounding periods in a year

Interest is paid monthly so nnumber of periods will be 12.

Therefore,

EFF = (1 + 18%/12) ¹² - 1

EFF = 19.56%