Question

Explain which companies would advertise APY over APR and describe how this would help them attract customers

Answer 1

Okay here's an example: a credit card company might charge 1% interest each month; So, the APR would equal 12% (1% x 12 months = 12%). This differs from APY, which takes into account compound interest. The APY for a 1% rate of interest compounded monthly would be 12.68% [(1 + 0.01)^12 – 1= 12.68%] a year. If you only carry a balance on your credit card for one month's period you will be charged the equivalent yearly rate of 12%. But however.... if you carry that balance for the year, your effective interest rate becomes 12.68% as a result of compounding each month.