Big Dom's Pawn Shop charges an interest rate of 19 percent per month on loans to...
Big Dom's Pawn Shop charges an interest rate of 19 percent per month on loans to its customers. Like all lenders, Big Dom must report an APR to consumers.
a. What rate should the shop report?
b. What is the effective annual rate?
Homework Answers
a.Rate to be reported=19%/month*12 months
=228%
b.EAR=[(1+APR/m)^m]-1
where m=compounding periods
=[(1+0.19)^12]-1
=706.42%(Approx).
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