Question

You can borrow $200 today and repay $215 in one week. What is the effective annual rate (EAR) implied by this 7.5 percent rate charged for only one week?

a. 45,602%
b. 4,198%
c. 14,104%
d. None of these are correct.
e. 1,164%

Answer 1

Effective Annual Rate = 4,198% (Approx)

Step-by-step explanation:

Given:

Weekly rate = 7.5%

Find:

Effective Annual Rate

Computation:

Effective Annual Rate = (1+weekly rate)^52-1

Effective Annual Rate = (1+7.5%)⁵²-1

Effective Annual Rate = (1+0.075)⁵²-1

Effective Annual Rate = 4,198% (Approx)