You just received your first credit card statement and the APR listed is 21

Finance Mar 18, 2021

You just received your first credit card statement and the APR listed is 21.7%. When you look closer at the statement you see that it’s compounded daily? What’s EAR?

EAR: (1+21.7/365)^365 =

Expert Solution

Answer:

The answer is 24.23%

Step-by-Step explanation

To calculate EAR (Effective Interest Rate), use the formula:

e^APR-1 = e^0.217 - 1 = 0.2423 = 24.23%

P.S. e is the number 2.71828 (look for a key labelled "e' on your calculator). If you are using excel, use the formula "exp"

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