The Truth in Lending Act: Many lending agencies compound interest more often than yearly, and as we noted , they are required to report the annual percentage rate, or APR, in a prominent place on the...

The Truth in Lending Act: Many lending agencies compound interest more often than yearly, and as we noted , they are required to report the annual percentage rate, or APR, in a prominent place on the loan agreement. Furthermore, they are required to calculate the APR in a specific way. If r is the monthly interest rate, then the APR is calculated using

APR = 12 × r .

a. Suppose a credit card company charges a monthly interest rate of 1.9%. What APR must the company report?

b. The phrase annual percentage rate leads some to believe that if you borrow $6000 from a credit card company which quotes an APR of 22.8%, and if no payments are made, then at the end of 1 year interest would be calculated as 22.8% simple interest on $6000. How much would you owe at the end of a year if interest is calculated in this way?

c. If interest is compounded monthly (which is common), then the actual amount you would owe in the situation of part b is given by

6000 × 1.01912 .

What is the actual amount you would owe at the end of a year?