Monica sees Ross’s credit card bill and notices that he has a balance of $7,650. She wants to try and make Ross see that his credit card company is really imposing a huge drag on his wallet. She starts by pointing out the the card charges a nominal 23.75% rate, but since Ross must make monthly payments, this amounts to monthly compounding. What is Ross’s effective rate?
A). 28.90%
B). 30.23%
C). 26.51%
D). 26.78%
E). 28.37%
The effective rate is computed as shown below:
= ( 1 + 0.2375 / 12 )12 - 1
= 26.51% Approximately
So the correct answer is option C i.e. 26.51%
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Monica sees Ross’s credit card bill and notices that he has a balance of $7,650. She...
Monica sees Ross’s credit card bill and notices that he has a balance of $7,650. She wants to try and make Ross see that his credit card company is really imposing a huge drag on his wallet. She starts by pointing out the the card charges a nominal 23.75% rate, but since Ross must make monthly payments, this amounts to monthly compounding. What is the formula for Ross’s effective rate and what should Monica say to Ross to convince him...