Question

Tai credit corp. wants to earn an effective annual return on its consumer loans of 14.1 percent per year. the bank uses daily compounding on its loans. what interest rate is the bank required by law to report to potential borrower

Answer 1

Answer : 13.19 % Explanation: Convert the Effective Annual Return EAR to Annual Percentage rate as shown below: EAR = [1 + (APR / n )]^ n â’ 1 APR = n [(1 + EAR)^ 1/ n â’ 1 where n= number of days in a year. Let us take it as 365, since daily compounding given EAR =14.1% per year so 365 *(1.141)^(1/365) = 13.19%