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Ainat [17]
3 years ago
15

Big Dom’s Pawn Shop charges an interest rate of 27 percent per month on loans to its customers. Like all lenders, Big Dom must r

eport an APR to consumers. a. What rate should the shop report? b. What is the effective annual rate? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
Business
1 answer:
Bad White [126]3 years ago
7 0

Answer:

a. 324%

b. 16.61%

Explanation:

a. The computation of the APR is the annual rate of interest which is shown below:

= Interest per month × number of months in a year

= 27% × 12 months

= 324%

b. And, the  effective annual rate would be

=  (1 + interest rate per month) ^ Number of months in a year - 1

= (1 + 27%) ^ 12 -1

= 1.27 ^ 12 -1

= 17.6053 - 1

= 16.61%

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