(a) Suppose a credit card company charges a monthly interest rate of 1.8%. What APR must the company report? (Round your answer to the nearest tenth of a percent.)  % (b) The phrase annual percentage rate leads some to believe that if you borrow $5000 from a credit card company which quotes an APR of 21.6%, and if no payments are made, then at the end of 1 year interest would be calculated at 21.6% simple interest on $5000. How much would you owe at the end of a year if interest is calculated in this way? (Round your answer to the nearest cent.) $  (c) If interest is compounded monthly (which is common), then the actual amount you would owe in the situation of part (b) is given by $5000 ✕ 1.01812. What is the actual amount you would owe at the end of the year? (Round your answer to the nearest cent.) $

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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Many lending agencies compound interest more often than yearly, and as we noted in Example P.2, they are required to report the annual percentage rate, or APR, in a prominent place on the loan agreement. Furthermore, they are required to calculate the APR in a specific way. If r is the monthly interest rate, then the APR is calculated using APR = 12 ✕ r.

(a) Suppose a credit card company charges a monthly interest rate of 1.8%. What APR must the company report? (Round your answer to the nearest tenth of a percent.)
 %

(b) The phrase annual percentage rate leads some to believe that if you borrow $5000 from a credit card company which quotes an APR of 21.6%, and if no payments are made, then at the end of 1 year interest would be calculated at 21.6% simple interest on $5000. How much would you owe at the end of a year if interest is calculated in this way? (Round your answer to the nearest cent.)


(c) If interest is compounded monthly (which is common), then the actual amount you would owe in the situation of part (b) is given by $5000 ✕ 1.01812. What is the actual amount you would owe at the end of the year? (Round your answer to the nearest cent.)
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