Question

A credit card company advertises an APR of 17.2%, compounded daily. What is the effective interest rate

Answer 1

18.76%

Explanation:

effective interest rate = ( 1 + periodic interest rate)^m - 1

m = number of compounding = 365

Periodic interest rate = APR / number of compounding = 17.2 / 365 = 0.0471% = 0.000471

(1 + 0.000471) ^365 - 1 = 18.76%