Question

What is the effective rate of a loan with annual interest rate of 9% compounded daily Express your answer as a percentage and round to two decimals. 9.42% 8.62% о 9.20% o 9.38% O None of the other answers are correct.

Answer 1

Calaculation of Effective annual interest rate compounded daily:

The correct option is • 9.42%

Given:

Annual interest rate(i) = 9% = 0.09

No. of compounding periods (n) = 365

Formula:

Effective Annual interest rate

= [1+(i/n)]ⁿ - 1

= [1+(0.09/365)]³⁶⁵ - 1

= (1+0.00024657534)³⁶⁵ - 1

= (1.00024657534)³⁶⁵ - 1

= 1.09416214208 - 1

= 0.09416214208

= 9.416214208%

= 9.42%

_____×_____

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