Question

EAR = (1+APR/n)^n -1, where n is the number of compounding periods per year. Benny’s credit card APR is 21.55% compounded daily. What is his actual interest rate per year—that is, his EAR?

Answer 1

His actual interest rate per year is 24.04%.

Explanation:

Given :
`EAR=(1+(APR)/(n))^(n)-1` where n is the number of compounding periods per year. Benny’s credit card APR is 21.55% compounded daily.

To find : What is his actual interest rate per year—that is, his EAR?

Solution :

The formula of EAR is
`EAR=(1+(APR)/(n))^(n)-1`

Here, APR = 21.55%=0.2155

n=365 (compounded daily)

Substitute the value,

`EAR=(1+(0.2155)/(365))^(365)-1`

`EAR=(1+0.0005904)^(365)-1`

`EAR=(1.0005904)^(365)-1`

`EAR=1.24040-1`

`EAR=0.2404`

`EAR=24.04\%`

Therefore, His actual interest rate per year is 24.04%.