Master Card and other credit card issuers must by law print the Annual Percentage Rate (APR) on their monthly statements. If the APR is stated to be 24.25%, with interest paid monthly. what is the card's EFF%?

a. 33.11%

b. 21.44%

c. 20.35%

d. 27.14%

e. 23.34%

Answer: D. 27.14%

Explanation:

The EFF% or (Effective annual rate) is calculated thus:

Recall:

EFF% = [ (1 + (r/n)) ^n] - 1

Annual percentage rate (APR) = Nominal rate (r) = 24.25 % = 0.2425

Period (n) = 12 months

In outing the values:

EFF% = [ (1 + (0.2425/12)) ^12] - 1

EFF% = [ 1 + (1.02020833) ^12] - 1

EFF% = 1.271353 - 1

EFF% = 0.271353

EFF = 0.271353 * 100

EFF = 27.14%

27.14%

Explanation:

EFF (effective annual interest rate) = (1 + (rate / number of periods) ^n - 1 = (1 + (0.2425 / 12) ^12 - 1 = 0.2714 = 27.14% where rate = 24.25% and number of periods = 12 months