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Problem 6.17 lames Smith borrowed $15,550 from a bank for three years. If the quoted rate (APR) is 4.00 percent, and the compounding is daily, what is the effective annual interest rate (EAR)? (Round answer to 2 decimal places e.g. 15.25%. Use 365 days for calculation.) Effective Annual interest rate

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Calculation of effective interest rate: Quoted interest rate (APR rate here is 4% or 0.04 Q) is the annual interest rate. Therefore, the quoted interest If compounding daily, (m) is 365 days in a year Effective interest rate1+-1 365 0.04 365 365 1+0.0001095)1 1.0001095865-1 1.04077-1 0.0407 = 4.07790 = 4.08% ( rounded ) Answer: EAR is 4.08%

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