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28 June, 10:50

A credit card company advertises an APR of 12.2%, compounded daily. What is the effective interest rate? Round your answer to two decimal places

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  1. 28 June, 11:58
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    12.97%

    Step-by-step explanation:

    The effective interest rate is the interest rate you actually pay when you take into account the compounding effect. The formula you have to use to calculate the effective interest rate is:

    Effective interest rate = (1+i/n) ^n-1

    i: interest rate

    n: number of compounded periods

    Effective interest rate = (1 + (0.122/365)) ^365-1

    Effective interest rate=1.1297-1

    Effective interest rate=0.1297→12.97%

    According to this, the answer is that the effective interest rate is 12.97%.
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