Question

suppose community bank offers to lend you 10000 for one year at a nominal annual rate of 17.75% but you must make interest payments at the end of each quarter and then pay off the $10,000 principal amount at the end of the year. What is the effective annual rate on the loan

Answer 1

18.97%

Step-by-step explanation:

Effective annual rate = (1 + periodic interest rate / m)^m - 1

M = 4

Periodic interest rate = 17.75%

17.75% / 4 = 4. 4375%

(1+0.044375) ^4 - 1 = 18.97%

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