Question

A credit card company advertises an APR of 15.3%, compounded daily. What

is the effective interest rate? Round your answer to two decimal places.

Answer 1

Answer is 16.53%

step-by-step:

Answer 2

16.52%

Explanation:

The effective interest rate is the real interest rate you have to pay on a loan when the compounding effect is considered. The formula to calculate it is:

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

i= interest rate: 15.3%

n= number of compounding periods: 365 as it is compounded daily and a year has 365 days.

Effective annual interest rate= (1+(0.153/365))^365-1

Effective annual interest rate= 0.1652→16.52%

According to this, the effective interest rate is 16.52%.