Question

If Like A Lot Corp. borrows yen at a nominal annual interest rate of 2.28?% and during the year the yen appreciates by 11.73 %?, what will the effective annual interest rate be for the? loan?

The effective annual interest? rate, E?, is nothing

Answer 1

Effective interest rate is determined by adding/subtracting the nominal interest rate depending up on the appreciation or depreciation in the forecast percentage change and adding or subtracting the nominal interest rate with the forecast percentage change.

Thus, following equation can be used to find the Effective annual interest rate.

E = N + F + (N*F)

N = 2.28%

F = 11.73%

Let’s put all the values in the formula

E = 0.0228 + 0.1173 + (0.0228* 0.1173)

     = .1401 + 0.002674

      = .1428 or 14.28%

--------------------------------------------------------------------------------------------------------------------------

Feel free to comment if you need further assistance J

Pls rate this answer if you found it useful.