Chapter 8, Problem 5P

Summary Introduction

To explain: Effective interest rate at which the pawnshop should lend money for.

Introduction:

Effective rate of interest:

Effective rate of interest is the actual interest rate that one investor gets on its investment or the interest rate that one borrower pays on its borrowings. With the given effective interest rate, one investor may evaluate different investing avenues and invest in them preferably. It also provides a benchmark for the banks and financial institutions to set up their interest rates in accordance to give loans and issue credit to the borrowers.