Question

A credit card had an APR of 16.55% all of last year, and compounded interest daily. What was the credit card's effective interest rate last year? Show your work.

Answer 1

 A. Since the APR is 15.21%, to calculate the effective interest rate you use this 

(1+APR/n)^n - 1, where n is the number of times interest is compounded in a year. 

In this case n = 365, so you get (1+APR/n)^n - 1 = (1+.1521/365)^365 - 1 = .1642 = 16.42%