Question

A credit card had an APR of 18.78% all of last year and compounded interest daily. What was the credit card's effective interest rate last year?

Answer 1

Effective interest rate
R=(1+0.1878÷360)^(360))−1)*100
R=20.65%

Answer 2

20.65%

Explanation:

Formula to calculate effective interest rate :

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

where r = Rate of interest = 18.78% = 0.1878

n = number of compounding period = 365

Now put the values into formula

`=(1+(0.1878)/(365))^365-1`

`=(1+0.000515)^(365)-1`

`=1.000515^(365)-1`

= 1.206534 - 1

= 0.206534

= 20.65%

Last year Effective interest rate was 20.65%.