SOLUTION: A department store has its own credit card facilities, for which it charges interest at a rate of 2% each month. Explain briefly why this is not the same as an annual rate of 24%.

SOLUTION: A department store has its own credit card facilities, for which it charges interest at a rate of 2% each month. Explain briefly why this is not the same as an annual rate of 24%.

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Question 1072570: A department store has its own credit card facilities, for which it charges interest at a rate of 2% each month. Explain briefly why this is not the same as an annual rate of 24%. What is the annual percentage rate (effective interest rate)?
Answer by Boreal(15235) (Show Source): You can put this solution on YOUR website!
Each compounding adds more than an one time compounding of 24%
(1+.02)^12=1.268, so 26.8%.
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