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10 June, 08:30

Eden opened a credit card at a department store with an APR of 19.07% compounded monthly. What is the APY on this credit card?

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  1. 10 June, 09:09
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    APR = Annual Percentage Rate; APY = Annual Percentage Yield.

    This is a tough question!

    To get the APY we use the compounding formula (A = P (1+r/n) ^nt) and put $1 in for the principal and see what our final amount is at 19.07% after a year.

    A = 1 (1+.1907/12) ^12

    A = 1.0159^12

    A = 1.2083 This means that we paid 0.2083 on our dollar after a year which means the APY is 20.83%.
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