Credit card A offers an APR of 27.29%, compounded monthly, while credit card B offers an APR of 27.12%, compounded daily. All else being equal, which card offers the better deal for the consumer?

• purpleskittsow6j4j: Credit card A, because it's effective interest rate is about o.16% less than that of credit card B.
• ap8997154:

  The effective interest rate, also known as the effective annual interest rate, annual equivalent rate, or simply effective rate. The card which offers a better deal to the customer is Credit card A.

  What is an effective rate of interest?

  The effective interest rate, also known as the effective annual interest rate, annual equivalent rate, or simply effective rate, is the interest rate on a loan or financial product that is restated from the nominal interest rate and expressed as the equivalent interest rate if compound interest was payable annually in arrears. It is calculated by the formula,

  EIR = [1+(i/n)]ⁿ - 1

  
  The effective rate of interest on Credit Card A is,

  Effective rate = [1+(i/n)]ⁿ - 1 = [1+(0.2729/12)]¹² - 1 = 30.97%

  The effective rate of interest on Credit Card B is,

  Effective rate = [1+(i/n)]ⁿ - 1 = [1+(0.2712/365)]³⁶⁵ - 1 = 31.14%

  Since the effective rate of Credit card A is less than credit card B, therefore, the card which offers a better deal to the customer is Credit card A.

  Learn more about Effective Interest Rates:

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