Question #233741

A local store charges 11/2% each month on the unpaid balance for its charge account. What nominal annual interest rate is being charged? What is the effective interest rate?

Expert's answer

"18\\%" compounded monthly

– interest rate per month: i ="18\\%\/12 = 1.5\\%"

– no. interest periods per year:"N = 12"

Suppose that you invest $1,000 for 1 year at 18% compounded monthly.

"F= \\$1,000 (1 + i)^N = \\$1,000 (1 + 0.015)^{12}"

"= \\$1,195.60"

"i = 0.1956\u2014\u2014>19.56%" %

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