Question

Brandon opened a credit card at a department store with an APR of 14.99% compounded monthly. What is the APY on this credit card? A. 1.25% B. 29.98% C. 16.06% D. 19.55%

Answer 1

real annual rate= 0.1606 = 16.06%

Explanation:

Giving the following information:

APR= 14.99% = 0.1499

First, we will determine the nominal monthly rate:

Nominal monthly rate= 0.1499/12

Nominal monthly rate= 0.01249

Now, to calculate the real annual rate, we need to use the following formula:

real annual rate= [(1 + Nominal monthly rate)^n] - 1

real annual rate= [(1.01249^12) - 1]

real annual rate= 0.1606 = 16.06%