Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Question
![Problem 5-15 Calculating APR [LO 4]
Vandermark Credit Corp. wants to earn an effective annual return on its consumer loans
of 17.25 percent per year. The bank uses daily compounding on its loans.
What interest rate is the bank required by law to report to potential borrowers? (Do not
round intermediate calculations and enter your answer as a percent rounded to 2
decimal places, e.g., 32.16. Use 365 days in a year.)
Interest rate
%](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fca0ee9f0-26a0-4b69-a817-d7c752512585%2F0f5297a1-e9e4-4e41-b03f-a7d098cb499b%2Fsz7zhl_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Problem 5-15 Calculating APR [LO 4]
Vandermark Credit Corp. wants to earn an effective annual return on its consumer loans
of 17.25 percent per year. The bank uses daily compounding on its loans.
What interest rate is the bank required by law to report to potential borrowers? (Do not
round intermediate calculations and enter your answer as a percent rounded to 2
decimal places, e.g., 32.16. Use 365 days in a year.)
Interest rate
%
Expert Solution
Step 1
Effective annual interest rate is also called annual rate of return . It is the real return received for the investment. The increase in the compounding period will increases the effective annual rate of return.
It can be calculated using the following formula:
Where,
n = Number of periods
i = Nominal interest rate
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