Question

Jeannette has an offer from a credit card issuer for a 0% APR for the first 60 days and a 27.32% APR afterwards, compounded daily. What effective interest rate is Jeannette being offered?

A. 27.32%
B. 25.63%
C. 31.01%
D. 31.40%

Answer 1

R = 25.63%

so correct option is B. 25.63%

Explanation:

given data

APR first 60 days = 0%

APR afterwards = 27.32% = 0.2732

to find out

effective interest rate

solution

we know equation of rate is

R =
`(1+(r)/(365) )^D - 1` .......................1

here R is the apr and we know 0 for the first 60 days and 0.2319 for remaining (365 -60 ) = 305 days

so put here value we get

R =
`(1+(0)/(365) )^(60) - 1` +
`(1+(0.2732)/(365) )^(305) - 1`

R = 0 +
`(1+(0.2732)/(365) )^(305) - 1`

R = 0.256342

effective interest rate = 25.63%

so correct option is B. 25.63%