Question

A credit card company quotes you an APR of 18.90%. What is the actual rate of interest you are paying if interest is computed quarterly? A) 18.90% B) 19.21% C) 20.63% D) 20.28% E) 20.64%

Answer 1

Hi

here APR = 18.90%

so actual rate = (1+APR/n)^n-1

here n = number of compounding in year = 4

So actual rate = (1+18.90%/4)^4-1

= 1.04725^4-1

= 0.2028 = 20.28%

Hence option D is correct here.

Thanks