Question

Sophia's credit has an APR of 20.87 % and it just changed its compounding. From monthly to daily what will happen to the effective interest rate charged to Sophia

Answer 1

increase by 0.2

Explanation:

The guy was correct!

Answer 2

It will increase by 0.2%.

Explanation:

In this problem we need to solve for the monthly interest first.

We use the formula:

`r = (1+(i)/(n))^(n)-1`

Now that we have the formula we now define our variables.

i = 20.87% or 0.2087

n = 12

`r=(1+(0.2087)/(12))^(12) - 1`

`r=(1+(0.2087)/(12))^(12)-1`

`r=(1+\frac{0.0174})^(12)-1`

`r=(1.0174})^(12)-1`

`r= 1.2299-1`

`r= 0.2299` or 23%

Now we have to find the daily interest rate.

`r=(1+(0.2087)/(365))^(365)-1`

`r=(1+(0.2087)/(365))^(365)-1`

`r=(1+0.00057178082)^(365)-1`

`r=(1.00057178082)^(365)-1`

`r= 1.2320-1`

`r= 0.2320` or 23.20%

23.20% - 23% = 0.20% increase.