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12 November, 04:25

A credit card had an Apr of 12.87% all of last year and compounded interest daily. What was the credit card's effective interest rate last year?

A. 16.32%

B. 12.87%

C. 11.64%

D. 13.73%

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Answers (1)
  1. 12 November, 04:52
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    We first divide the nominal interest rate of 12.87% by the number of days in a year, 365, to get the effective interest per day (by which it is compounded). This gives us 0.03526%. Then we raise (1+i) ^ (number of days), which is (1.0003526) ^365, and this gives us 1.1373. This final result is equivalent to 13.73% effective interest rate per year.
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