Question
In: Finance
You are a lender. You know you want to actually gain a rate of 10% on...
You are a lender. You know you want to actually gain a rate of 10% on funds that you lend to your customers. What APR should you quote to borrowers that will make monthly payments on the loan?
|
0.797% |
||
|
10% |
||
|
9.57% |
||
|
12% |
Solutions
Expert Solution
9.57%
| APR is the annual percentage rate which can be calculated as follows: | ||||||||||||
| ((1+APR/n)^n)-1 | = | Actual gain | Where, | |||||||||
| ((1+APR/12)^12)-1 | = | 0.10 | n | = | Number of times compounded in the year | |||||||
| (1+APR/12)^12 | = | 1.10 | ||||||||||
| (1+APR/12) | = | 1.10^(1/12) | ||||||||||
| (1+APR/12) | = | 1.007974 | ||||||||||
| APR/12 | = | 0.007974 | ||||||||||
| APR | = | 9.57% | ||||||||||
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