Mr. Miser loans money at an annual rate of 20 percent. Interestis compounded daily. What...

Mr. Miser loans money at an annual rate of 20 percent. Interest is compounded daily. What is the actual rate Mr. Miser is charging on his loans?

Solutions

Expert Solution

The question is solved by computing the effective annual rate.

The effective annual rate is calculated using the below formula:

EAR= (1+r/n)^n-1

Where r is the interest rate and n is the number of compounding periods in one year.

EAR= (1+0.20/365)^365 - 1

= 1.2213 - 1

= 0.2213*100

= 22.13%

Therefore, Mr.Miser is charging 22.13% on his loans.

jeff jeffy answered 2 years ago

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