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posted by  nyg12 on 9/10/2009 12:27:50 AM  |  status: Closed  |  Earned Karma: Label

Check my answers on nominal interest rate

Course Textbook Chapter Problem Needs by
Economics N/A N/A N/A 9/10/2009 at 12:00:00 PM
Question Details:
Store offered you a credit card that charges interest at .95% per month compounded monthly.
What is nominal interest(annual percentage) rate for this card? What is the effective
annaul interest rate?
A) (1+.0095/12)12 -1 = .00954 = .954%
B) e.0095 - 1 = .00955 = .96%
Not sure if these are correct.
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(SME)
posted by devis on 9/10/2009 1:15:51 AM  |  status: Live
Asker's Rating: Lifesaver   
Response Details:
Credit Card Monthly Interest Rate = 0.95%
Nominal Interest Rate (or) Annual Percentage Rate for this Card = 0.95% * 12 = 11.4% per year
Effective Annual Interest Rate Calculation for this Credit Card:
Effective Annual Rate (ieff) =    [(1+r/k)k - 1]
r = Nominal Interest Rate (or) Annual Percentage Rate
k = Times per year compounded
ieff = Effective Annual Rate
Effective Annual Rate (ieff) = [(1+0.114/12)12 - 1]
Effective Annual Rate (ieff) = [(1+0.0095)12 / 12)12 - 1]
Effective Annual Rate (ieff) = [(1.0095)12 - 1 ]
Effective Annual Rate (ieff) = [1.120149216 - 1]
Effective Annual Rate (ieff) = 0.12014 (or) 12.01%
Effecitve Annual Rate (ieff) = 12.01%
Hope it may help you
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