APPLIED CALCULUS-PRINT COMPANION (LL)
APPLIED CALCULUS-PRINT COMPANION (LL)
6th Edition
ISBN: 9781119275565
Author: Hughes-Hallett
Publisher: WILEY
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Chapter B, Problem 1P
To determine

A department stores issues its own credit card, with an interest rate of 2% per month. Explain why this is not the same as an annual rate of 24%. What is the effective annual rate?

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Answer to Problem 1P

26.8%

Explanation of Solution

Given information:

A department stores issues its own credit card, with an interest rate of 2% per month.

Calculation:

Effective annual rate is given by r=(1+in)n1=(1.02)121=1.268241=0.268=26.8%

So,each compounding adds more than an one time compounding of 24%.

Thus, it is not the same as annual rate of 24%.

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