Question

Grants credit card has an APR of 11.28%, and it just compounding period from monthly to daily. What will happen to the effective interest rate charged to grant?

A. It will increase by about 0.06%

B. It will decrease by about 0.6%

C. It will increase by about 0.6%

D. It will decrease by about 0.06%

Answer 1

Answer: IT WILL INCREASE BY 0.06%

Explanation:

Answer 2

C. It will increase by about 0.6%

Explanation:

Since, the effective interest rate is,

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

Where, i is the stated interest rate,

n is the number of compounding periods,

Here, i = 11.28 % = 0.1128,

n = 365 ( 1 year = 365 days ),

Hence, the effective interest rate would be,

`r=(1+(0.1128)/(365))^(365)-1`

`=0.119388521952`

Now, the changes in effective interest rate = Effective interest rate - Stated interest rate

= 0.119388521952 - 0.1128

= 0.006588521952 ≈ 0.006 = 0.6 %

Hence, It will increased by about 0.6 %,

Option A is correct.