Calculate the effective annual interest rate, Civil Engineering

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A credit card advertises a nominal rate of 18% compounded monthly. If no monthly payments are made, the effective annual interest rate is most nearly:

The actual rate is, (18% / 12) = 1.5% per month. The effective annual rate is:

i = (1 + .015)12 - 1 = 0.1956 or 19.56% if you do not pay anything each month.


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