Assume that Billings,Inc.borrows $5,000,000 for 120 days.The total interest paid is $150,000.What is the APY,or Effective Annual Rate of interest that Billings pays?
A) 3.00%
B) 9.00%
C) 9.27%
D) 9.77%

Question

Quizplus · Accepted Answer

To find the APY, we can use the formula:

APY = (1 + r/n)^n - 1

where r is the nominal annual interest rate and n is the number of compounding periods in a year.

First, we need to find the nominal annual interest rate. We can use the formula:

Interest = Principal x Rate x Time

Plugging in the values we know:

150,000 = 5,000,000 x r x (120/365)

Solving for r:

r = 0.09863 or 9.863%

Next, we need to find the number of compounding periods in a year. Since the loan is for 120 days, or about 4 months, there are 3 compounding periods in a year. We can now calculate the APY:

APY = (1 + 0.09863/3)^3 -1 = 0.0927 or 9.27%

Therefore, the best choice is C with an APY of 9.27%.

Assume That Billings,Inc