Answer:
79.08%
Explanation:
To determine the nominal annual rate that Anne Lockwood should quote to her credit customers, we need to consider the financing costs of borrowing from the bank at a nominal rate of 6% compounded monthly.
First, let's understand what a nominal rate means. A nominal rate is the stated interest rate without taking into account the compounding frequency. In this case, the bank charges a nominal rate of 6% compounded monthly.
To offset her financing costs, Anne needs to quote a nominal annual rate that is equal to the bank's nominal rate of 6% compounded monthly. However, she wants to quote this rate to her customers, who are expected to pay on time.
To calculate the nominal annual rate, we need to convert the bank's nominal rate from monthly compounding to annual compounding. Since there are 12 months in a year, we can use the formula:
Nominal Annual Rate = (1 + Nominal Monthly Rate)^12 - 1
Substituting the values, we have:
Nominal Annual Rate = (1 + 0.06)^12 - 1
Calculating this expression, we find:
Nominal Annual Rate = (1.06)^12 - 1
Nominal Annual Rate = 1.790847 - 1
Nominal Annual Rate = 0.790847
Therefore, Anne should quote a nominal annual rate of approximately 0.790847, or 79.08%, to her credit customers in order to exactly offset her financing costs of borrowing from the bank at a nominal rate of 6% compounded monthly.
It's important to note that this calculation assumes that Anne's credit customers will pay on time and that there are no additional fees or charges associated with the credit transactions.