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?

Question

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Answer 1

Question

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?

Expert Solution & Answer

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)n−1=(1.02)12−1=1.26824−1=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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Answer 2

Question

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?

Expert Solution & Answer

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)n−1=(1.02)12−1=1.26824−1=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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Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 3

Question

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?

Expert Solution & Answer

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)n−1=(1.02)12−1=1.26824−1=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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Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 4

Question

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?

Expert Solution & Answer

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)n−1=(1.02)12−1=1.26824−1=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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Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 5

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?

Expert Solution & Answer

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)n−1=(1.02)12−1=1.26824−1=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%.

Answer 6

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?

Expert Solution & Answer

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)n−1=(1.02)12−1=1.26824−1=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%.

Answer 7

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?

Answer 8

Expert Solution & Answer

Answer to Problem 1P

26.8%

Answer 9

Expert Solution & Answer

Answer 10

Expert Solution & Answer

Answer 11

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)n−1=(1.02)12−1=1.26824−1=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%.

Answer 12

Ch. B - Prob. 1P Ch. B - Prob. 2P Ch. B - Prob. 3P Ch. B - Prob. 4P Ch. B - Prob. 5P Ch. B - Prob. 6P Ch. B - Prob. 7P Ch. B - Prob. 8P Ch. B - Prob. 9P Ch. B - Prob. 10P

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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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?

Answer to Problem 1P

Explanation of Solution

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Chapter B Solutions