Answer all multiple-choice questions by clearly marking your answer. Assume all bonds are semi-annual pay, have whole years to maturity, and have face (or principal values) of $1000.

1. You receive a credit card solicitation that has an APR of 18%, but the fine print says that interest on the account balance is compounded monthly. What is the APY on the card, and why is it different from the APR?

   1. 19.6% because the APY does not take compounding into account while the APR does.

   2. 19.6% because the APR does not take compounding into account while the APY does.

   3. 13.8% because the APR does not take compounding into account while the APY does.

   4. 13.8% because the APY does not take compounding into account while the APR does.