You take out an unusual loan in which the monthly payments are determined by compounding daily. The APR is 7.2%. Assume 30 days in a month and 360 days in a year. What is the effective annual rate?

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704 viewsOctober 8, 2016

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Darshita 6.14K October 8, 2016 0 Comments

You take out an unusual loan in which the monthly payments are determined by compounding daily. The APR is 7.2%. Assume 30 days in a month and 360 days in a year. What is the effective annual rate? Answer in percent and round to two decimal places.

Show me the process please~Thanks

1 Answer

score 0 · Answer 1 · 2016-10-08T06:45:47+00:00

Answer : effective annual rate will be 7.46

Working Notes

Effective Annual Rate Formula

$i\,=\,\left(1+\frac{r}{m}\right)^{m}-1\$

Where r = R/100 and i = I/100; r and i are interest rates in decimal form. m is the number of compounding periods per year. The effective annual rate is the actual interest rate for a year.

i (1+7.2/360)360-1

=7.4648

=7.46

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