Credit Card Interest Rates

Hi guys..We've just discussed about our assignment and it was really interesting. We also discussed about Credit Cards and Interest Rates. There are 2 types of interest rate:

Nominal Interest Rate is the interest that the bank given.
For example: If the bank has 5% interest rate in semi-annually, the Nominal Interest Rate would be 10%. It will be 10% percent because semi-annually is half a year and annually get charged. Like:

05%(2) =10% (2) - represent a 1/2 year


and Effective Interest Rate is the rate that you actually charge on an annually basis and or paying interest on interest each compounding period.

For example: If the bank has 5% interest rate in semi-annually, the Effective Interest Rate would be 10.25%.

Here are the Solution to get the Effective Interest Rate:

Effective Interest Rate = ( 1 + i / m ) ^m -1
Effective Interest Rate = ( 1 + 0.10 / 2 ) ^2 -1

Effective Interest Rate = ( 1 + 0.05 ) ^2 -1
Effective Interest Rate = ( 1 + 0.05 ) ^2 -1
Effective Interest Rate = ( 1.05 ) ^2 -1
Effective Interest Rate = 1.1025 -1
Effective Interest Rate = 0.1025
or = 10.25%


NOTE :
m - is the number of compounding period like:
Monthly (12), Quarterly (4), Semi-annually (2) and Weekly (52)

i - is the Nominal Interest Rate.


! This website might give you some great ideas about Interest Rates and solution to your questions:

http://www.investopedia.com/terms/e/effectiveinterest.asp and or
http://freeonlinecalculator.net/calculators/financial/effective-interest-rate.php

In addition to, we also discussed about the "Rule of 72". The "Rule of 72" is a simplified way to determine how long an investment to take double, given a fixed annual rate of interest.

Formula of "Rule of 72" is:

Years = 72 / ( Interest Rate % )

Rate = 72 / Years

! Here some website might help you to solve and understand more about "Rule of 72".

http://www.investopedia.com/ask/answers/04/040104.asp and or

http://www.moneychimp.com/features/rule72.htm

If you have questions and complains to my post, i really appreciate to send me a comment.

Next Scribe is Chelsea.!!.