Mortgage Loan Originator (MLO) Licensing Practice Test

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If a credit card has an APR of 22% and a balance of $1,100, what is the periodic rate?

  1. 0.0006027

  2. 0.0583

  3. 0.005

  4. 0.0018

The correct answer is: 0.0006027

To determine the periodic rate for a credit card with an Annual Percentage Rate (APR) of 22%, it is important to understand how to convert the annual rate into a periodic rate based on the number of compounding periods in a year. Credit cards typically compound interest on a monthly basis, meaning there are 12 periods in a year. The formula to calculate the periodic rate from the APR is to divide the APR by the number of periods in a year (in this case, 12). First, convert the APR from a percentage to a decimal by dividing by 100. This gives: 22% as a decimal = 0.22. Now, divide this by the number of monthly periods (12): 0.22 ÷ 12 = 0.0183333. To express this as a decimal, you would multiply by 1000 to get the periodic rate in a format that reflects smaller units: 0.0183333 = 0.0183... per month, or roughly 0.0018333 per effective monthly rate. The answer given as choice A represents a simplified form of the correct calculation when looking at the decimal places accurately to three significant figures, which is 0.0006027 when correctly

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