Question

you borrowed $4 from your roomate to buy backup calculator batteries on the way to the exam. the next day, you repaid the $4 plus an addition 1 cent in interest to your roomate. Express this interest that you paid your roommate in EAR

Answer 1

Answer:

0.2840 or 28.40%

Explanation:

The formula for EAR= (1 + i/n)^n - 1

Where i= stated interest rate

n= number of compounding periods

In this case since the interest he paid is 1 cent, to convert it into percentage, we divide it by the dollar and multiply by 100

Note: 100 cent = 1 dollar

Therefore 4 dollars= 400 cents

To get the Interest rates= 1/400 x 100

= 0.25

n= 365 since we are computing daily

(1 + 0.25/365)^365 - 1

(1 + 0.000685)^365 - 1

(1.000685)^365 - 1

1.2840 - 1

0.2840 or 28.40%.