Acredit card company charges 18.6% percent per year interest. compute the effective annual rate if they compound, (a) annualy, (b) monthly (c) daily and (d) continuosuly.

a) Effective annual rate: 18.6%

b) Effective annual rate: 20.27%

c) Effective annual rate: 20.43%

d) Effective annual rate: 20.44%

Step-by-step explanation:

The effective annual interest rate, if it is not compounded continuously, is given by the formula

where

C = Amount of the credit granted

r = nominal interest per year

n = compounding frequency

t = the length of time the interest is applied. In this case, 1 year.

In the special case the interest rate is compounded continuously, the interest is given by

(a)  Annually

The effective annual rate is 18.6%

(b) Monthly

There are 12 months in a year

The effective annual rate is 20.27%

(c) Daily

There are 365 days in a year

The effective annual rate is 20.43%

(d)  Continuously

The effective annual rate is 20.44%

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