A credit card has a stated interest rate of 14.56 percent. What is the APR if interest is compounded monthly
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Ответ:
nominal interest rate = 4% annual
effective interest rate = 5.56% annual
Explanation:
the bond's nominal rate is basically the coupon rate
to calculate the bond's effective interest rate we must calculate its yield to maturity:
YTM = [coupon + [(face value - present value) / n]} / [(face value + present value) / 2]
coupon = $1,000 x 4% x 1/2 = $20FV = $1,000PV = $800n = 40YTM = [20 + [(1,000 - 800) / 40]} / [(1,000 + 800) / 2]
YTM = 25 / 900 = 2.777 semiannual ⇒ 5.56% annual