Question

Big Dom’s Pawn Shop charges an interest rate of 27.7 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? (Do not round intermediate calcualtions. Enter your answer as a percent rounded to 1 decimal place, e.g., 32.1.)
b.	What is the effective annual rate? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

  

Answer 1

a.APR=(27.7%/month*12months)=332.4%

b.EAR=(1+APR/m)^m-1
where m=compounding periods

=(1+0.277)^12-1

=1780.58%(Approx).