Effective annual rate: Desire Cosmetics borrowed $152,300 from a bank for three years. If the quoted rate (APR) is 11.75 per cent, and the compounding is daily, what is the effective annual rate (EAR)? (Round to one decimal place.)

Question

Quizplus · Accepted Answer

The effective annual rate (EAR) can be calculated using the formula: EAR = (1 + i/n)^(n*t) - 1, where i is the nominal rate (11.75%), n is the number of compounding periods per year (365 for daily), and t is the number of years (1 for annual rate). Calculating this gives approximately 12.5%.

Effective Annual Rate: Desire Cosmetics Borrowed $152,300 from a Bank