Question

Elliott Credit Corp. wants to earn an effective annual return (EAR or EAIR) on its consumer loans of 17.1 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?

Answer 1

15.79 % is the rate that bank is requred to give to potential borrowers

Explanation:

$\mathrm{EAR}=(1+\mathrm{APR} / \mathrm{m})^{\mathrm{m}}-1$

$A P R=m\left[(1+E A R)^{1 / m}-1\right]$

$\mathrm{APR}=365\left[(1+.171)^{1 / 365}-1\right]$

$A P R=365\left[(1.171)^{0.00273972602}-1\right]$

$\mathrm{APR}=365 *[1.00043258-1]$

$A P R=365 * 0.00043258$, APR = 0.1578917  

Or 15.79% (it is rounded off )

Where:

EAR = effective annual rate

APR = Annual percentage rate

M = number of compounding

Therefore, the interest of rate that the bank is required by law in order to report to all the potential borrowers is 15.97%