Falcon Perch Bank charges an APR of 23.503% with daily compounding, assuming a 365-day year, on...

Falcon Perch Bank charges an APR of 23.503% with daily compounding, assuming a 365-day year, on five-year consumer loans up to $25,000. The bank requires that principal plus accumulated interest be repaid at maturity.

What is the effective annual rate on these loans?

Express your answer in percent to three decimal places. (For example, enter 3.175 for “3.175%”.)

Solutions

Expert Solution

APR (r)= 23.503%

Compounding is daily. So Number of compounding in Year (m)= 365

Effective Annual rate formula = ((1+(r/m))^m)-1

=((1+(23.503%/365))^365)-1

=0.2648510427 or 26.49%

So Effective Annual rate on this Loan is 26.49%

jeff jeffy answered 2 years ago

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