Question

Ricky Ripov’s Pawn Shop charges an interest rate of 16.75 percent per month on loans to its customers. Like all lenders, Ricky must report an APR to consumers.

a. What rate should the shop report? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

b. What is the effective annual rate? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Answer 1

a.Rate to be reported=16.75%/month*12 months

=201%

b.EAR=[(1+APR/m)^m]-1
where m=compounding periods

=[(1+0.1675)^12]-1

=541.33%(Approx)