Question

Barcain Credit Corp. wants to earn an effective annual return on its consumer loans of 16.0 percent per year. The bamk uses daily compounding on its loans. What interest rate is the bank required by law to report to potential borrowers?( use 365 days a year. Do not round intermediate calculations and round your final answer to 2 decimal places. (32.16)

Interest rate _________%

Answer 1

Answer:

The Bank has to report the interest rate at 14.85% to meet law requirement.

Explanation:

Please find the below for details explanations and calculations:

As required by law, the Bank has to report the nominal interest rate it is going to charge to potential borrowers.

We have been given effective annual rate, thus, we may derive nominal interest rate from the effective annual rate, denoted as i, by the below calculation:

(1+ effective annual rate) = ( 1 + i/365)^365 <=> 1.16 = ( 1 + i/365)^365 <=> i = 14.85%.

Thus, the answer is 14.85%.

Answer 2

Answer: The answer is 15.79%

Explanation

365*{1 +0.16}^{1/365} - 1

= 15.79%