Question

A credit card had an apr of 15.21 all of last year and compounded interest daily. what was the credit cards effective interest rate last year?

A) 11.64%
B) 15.21
C) 16.42%
D) 16.32%

Answer 1

Let P = the principal
The apr is r = 15.21% = 0.1521
The compounding interval is n = 365
The time is t = 1 year

The value after 1 year is

`A=P(1+ (r)/(n) )^(nt)`
That is,
A = P(1 + 0.1521/365)³⁶⁵ = 1.1642P
The interest is 1.1642P - P = 0.1642P

The effective percent interest rate is
100(0.1642P/P) = 16.42%

Answer: 16.42%