Question

Vandermark Credit Corp. wants to earn an effective annual return on its consumer loans of 14.75 percent per year. The bank uses daily compounding on its loans. What interest rate is the bank required by law to report to potential borrowers

Answer 1

13.76%

Step-by-step explanation:

The computation of the interest rate required by law is shown below:

As we know that

Effective annual rate = (1 + Annual percentage rate ÷ number of days)^number of days - 1

0.1475 = (1 + Annual percentage rate ÷ 365)^365 - 1

(0.1475 + 1) = (1 + Annual percentage rate ÷ 365)^365

(1.1475)^ × (1 ÷ 365) = 1 + Annual percentage rate ÷ 365

So, the Annual percentage rate is

= [(1.1475)^ × (1 ÷ 365) - 1] × 365

= 0.1376

= 13.76%