Question

Your bank will lend you $6,000 for 45 days at a cost of $93 interest a. What is your annual rate of interest? (Use 365 days in a year. Do not round intermediate calculations. Round the final answer to 2 decimal places.) Annual rate of interest % b. What is your effective annual rate? (Use 365 decimal places.) te ays in a year. Do not rou diate calculations. Ro the final answer to 2 Effective annual rate %

Answer 1

a.	Annual rate of interest	=	(Interest / Amount borrowed)*(365/loan days)
		=	(93/6000)*(365/45)
		=	12.57%
b.	Effective annual rate	=	((1+(i/n))^n)-1		Where,
		=	((1+(0.1257/8.11))^8.11)-1		i	Annual nominal rate of return		=	12.57%
		=	13.29%		n	Number of times compounding in a year	365/45	=	8.111111

Answer 2

SOLUTION :

a.

Annual rate of interest 

= Interest rate for the period * number of periods in a year

= 93/6000 * 365/45

= 0.1257

= 12.57 % (ANSWER).

b.

Effective annual rate

= [ ( 1 + interest rate of the period)^ (number of periods in a year) ] - 1

= (1 + 93/6000)^(365/45) - 1

= 0.1329

= 13.29 % (ANSWER).