Answer to Question #233741 in Civil and Environmental Engineering for Alan Enrico V Tuib

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?
1
Expert's answer
2021-09-12T00:39:44-0400

"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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