Question

if a nine-day single payment loan has a periodic interest rate of 10.5% on what is the approximate effective interest rate of the loan

Answer 1

Answer: 5635.6% is the correct answer

Answer 2

Answer: 11.1004 % ( Approx)

Explanation:

Since, effective interest rate,
`r = (1+ (i)/(n) )^n - 1`

Where, i is the stated interest rate,

And, n is the number of compound periods.

Here i = 10.5/100 = 0.105

And, Number of compound periods = 9

Thus, the effective interest rate of the loan,

`r = (1+ (0.105)/(9) )^9 - 1`

⇒
`r = 1.01166666667^9 - 1`

⇒ r = 1.11003575064 - 1=0.11003575064
`\rightarrow` 11.003575064 % ≈ 11.004 %