A credit card had an APR of 16.42% all of last year and compounded interest daily. What was the credit card's effective interest rate last year?

Question

anonymous · Answer

I honestly am drawing a blank on this one guys, Financial Literacy, not my best subject.

amistre64 · Answer

isnt effective interest rate related to the same amount of interest that would have been collected if this was not a compounding issue?

anonymous · Answer

Honestly, I would assume that with a constant daily rate, that the answer would be consistent. But, I'm confusing myself over and over with this one. *Dazed and confused*

anonymous · Answer

Here: The answer is 

Effective rate r = (1 + APR/365)^365 - 1

amistre64 · Answer

$$E=(1+\frac in)^n-1$$

here i would say that n = 365 and i = .1642

amistre64 · Answer

Rav was quicker to the draw :)

anonymous · Answer

So I was right, second guessing myself. Thanks so much guys for not just "handing me the answer." I needed to learn how to do it myself! Gracias!

anonymous · Answer

no wonder i am broke

amistre64 · Answer

the compounded interest daily of 1 dollar would have been
$$1*(1+\frac{.1642}{365})^{365}$$
would have given us 1.17841 in our account at the end of the year.

this is a 17.84% effective yeild on our 1 dollar