Blastdale Corp.is considering borrowing $15,000 for a 60-day period.The firm will repay the $15,000 principal amount plus $200 in interest.What is the effective annual rate of interest? Use a 360-day year.

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Quizplus · Accepted Answer

The effective annual rate (EAR) can be calculated using the formula: EAR = (1 + i/n)^n - 1, where i is the annual interest rate and n is the number of compounding periods per year. In this case, the interest for a 60-day period is $200 on a principal of $15,000, which is an interest rate of (200/15000) = 0.0133 or 1.33% for 60 days. Since there are 360/60 = 6, 60-day periods in a 360-day year, the annual interest rate is 1.33% * 6 = 8%. Therefore, the effective annual rate of interest, without the need for compounding in this simple interest scenario, is 8%.