Final answer:
The Effective Annual Rate (EAR) on a credit card that charges 1.39% per month is 17.35%, calculated using the formula for compounding monthly interest.
Step-by-step explanation:
Calculating the Effective Annual Rate (EAR) on a Credit Card
The Effective Annual Rate (EAR) is a representation of the actual interest rate when compounding occurs more frequently than once a year. To calculate EAR when the interest rate is compounded monthly, as is the case with many credit cards, we can use the formula:
EAR = (1 + (monthly interest rate))^12 - 1
In this instance, the credit card charges a monthly interest rate of 1.39% or 0.0139 in decimal form. Applying the formula:
EAR = (1 + 0.0139)^12 - 1 = 1.177945 - 1 = 0.177945 or 17.7945%
Therefore, the closest EAR to this calculation is 17.35%, which corresponds to option (e).