the annual percentage rate on a credit card determines _______. This is a topic that many people are looking for. bluevelvetrestaurant.com is a channel providing useful information about learning, life, digital marketing and online courses …. it will help you have an overview and solid multi-faceted knowledge . Today, bluevelvetrestaurant.com would like to introduce to you Annual Percentage Rate (APR) and effective APR Finance & Capital Markets Khan Academy. Following along are instructions in the video below:
“Easily the most quoted number people give you when they re npublicizing information about their their credit cards is the apr. I think you might guess nor you might already that it stands for annual percentage rate. What i want to do in this nvideo is to understand a little bit more detail nin. What they actually mean by the annual percentage nrate and do a little bit math to get the real or the nmathematically or the effective annual percentage rate.
I was actually just nbrowsing the web and i saw some credit card that had nan annual percentage rate of 229 annual percentage. Rate but then right next to it they say that we have 006274 daily periodic rate. Which to me this right here ntells. Me that they compound the interest on your credit.
Ncard balance on a daily basis. And this is the amount that they compound. Where do they get these numbers from if you just take 06274 nand multiply by 365 days in a. Year you should get this 229.
Let s see if we get that of course. This is percentage. So this is a percentage here nand. This is a percent here let me get out my trusty ncalculator and see.
If that is what they get if i take 06274 remember. This is a percent nbut. I ll just ignore the percent sign so as a. Ndecimal i would actually add two more.
Here but. N06274 x. 365 is equal to right on the money. 229.
. You say my reply to you is that nthey re compounding on a daily basis. They re compounding this nnumber on a daily basis. So if you were to give them n 100.
And if you didn t have to pay some type of a minimum nbalance and you just let that 100 ride for a year nyou wouldn t just owe them 1229. They re compounding this much every day so. If i were to write nthis as a decimal let me just write that as a. Decimal.
006274 as a. Decimal this is the nsame thing as 00006274. These are the same thing right. 1 is 01.
So 06 is 0006 as a decimal. This is how much they re ncharging every day. If you watch the ncompounding interest video. You know that if you wanted nto figure out how much total interest.
You would be npaying over a total year..
You would take this number add it to 1. So we have 1 this thing nover here 0006274 instead of just taking this nand multiplying. It by 365 you take this number. And you ntake it to the 365th power.
You multiply it by itself 365 times. That s because if i have 1 in my balance on day. 2 i m going to nhave to pay this much x. 1.
10006274 x. 1. On day 2. I m going to have to pay this much x.
This number. Again x. 1. Let me write that down on day 1.
Maybe. I have 1 that i owe them on day. 2 it ll be 1. X.
Thing. 10006274 on day. 3 i m going to have to pay 100 actually i forgot a 0 06274 x. This whole thing on day 3 it ll be 1 nwhich is the initial amount i borrowed x 1000.
This number 6274 that s just that there and nthen i m going to have to pay that much interest on nthis whole thing. Again i m compounding. 10006274 as you can see we ve kept nthe balance for two days. I m raising this to the second npower by multiplying it by itself i m squaring it if i keep that balance for n365 days.
I have to raise it to the 365th power and nthis is counting any kind of extra penalties or nfees. So let s figure out this right here this number nwhatever. It is this is once i get this and i subtract 1 from it that is the mathematically ntrue that is the effective annual percentage. Rate let s figure out what that is if i take.
10006274 and i nraise it to the 365. Power i get 1257. If i were to compound nthis. Much interest 06 for 365 days at the end nof a year or 365.
Days i would owe. 1257. X my noriginal principle amount this right here is equal to. 1257 i would owe 1257 x.
My noriginal principle amount or the effective interest rate do it in purple the effective apr annual percentage rate or the mathematically correct nannual percentage rate here is 257 ..
You might say you re saying. If you look at that ncompounding interest video. Even the most basic one nthat. I put out there you ll see that every npercentage point.
Really really really matters especially nif. You re going to carry these balances for a long period of time be very careful in general you shouldn t ncarry any balances on your credit cards nbecause. These are very high interest rates and you ll nend up just paying interest on purchases. You made many many years ago.
And you ve long ago lost all nof. The joy of that purchase i encourage you to not even keep balances. But if you do keep any balances. Pay very close attention to this that 229.
Apr. Is still probably not the full effective interest nrate. Which might be closer to 26 in this example. That s before they even ncount the penalties and the other types of nfees that they might throw.
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