Question

A credit card issuer offers an APR of 13.64% and compounds interest daily. which is it most likely to advertise, its APR or its effective interest rate?

A. it's APR, because it's 0.97% less than its effective interest rate.
B. it's APR, because it's 0.97% greater than the effective interest rate.
C. it's effective interest rate, because it's 0.97% less than the APR

Answer 1

Answer:A

Explanation:

A

Answer 2

To find the effective interest rate the formula is
R=(1+r/k)^(k)-1
R=?
r=nominal Interest rate 0.1364
K=compounded daily 365
Plug in the formula
R=(1+0.1364÷365)^(365)−1
R=0.1461 This the effective interest rate 14.61%
As you can see that the effective interest rate is greater than the nominal interest rate by
0.1461−0.1364=0.0097×100=0.97%

So the answer is a

Hope it helps!