A new Visa card promotion quotes an APR of just 18

Finance Oct 22, 2020

A new Visa card promotion quotes an APR of just 18.5%. It's compounded weekly. What is the EAR?

Enter your answer as a regular percent rounded to the nearest first decimal. Do not enter percent signs, dollars signs, or commas. Of course, you will be working with four decimals on intermediate calculations, but enter the number rounded to the nearest first decimal.

For example, if you calculated 3.9267%, you would enter 3.9. Or if you calculated a decimal of 0.06294, you would enter 6.3.

Expert Solution

Computation of EAR:

EAR = (1+i/n)^n - 1

Here,

EAR = Effective Annual Return = ?

i = APR = 18.5%

n = Number of Compounding Periods = 52 weeks (assume)

EAR = (1+18.5%/52)^52 - 1

= 1.20282 - 1

= 0.20282

EAR = 20.28% or 20.3%

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