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Q 6.3: Mia received a credit card offer in the mail. The credit card has an annual percentage rate of 26%. What is the approximate monthly interest rate that will apply to any unpaid balances on this credit card? Assume 12 equal months. A : 4.1%. B : 26.0%. C : 13.0%. D : 2.17%.

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Answer:

D : 2.17%.

Explanation:

The 26% is an APR(Annual Percentage Rate). This is a quoted rate that  a credit card company charges . It is also known as the  nominal rate.

Since the question is asking for a monthly rate, use the 26% and convert it into monthly rate. We have 12 months in a year; meaning, we will divide the nominal rate by 12;

Monthly rate = APR / n

APR = 26% or 0.26 as a decimal

n = compounding periods = 12

therefore, Monthly rate = 26% /12 = 2.17%