Question

Barcain Credit Corp. wants to earn an effective annual return on its consumer loans of 12.3...

Barcain Credit Corp. wants to earn an effective annual return on its consumer loans of 12.3 percent per year. The bank uses daily compounding on its loans. What interest rate is the bank required by law to report to potential borrowers?

If possible, how would you go about figuring this problem out using an excel function?

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Answer #1

Effective Interest Rate (EAR) =

i = Nominal annual interest rate

n = Number of Compounding periods

=> i = 0.1160 or 11.60%

interest rate the bank required by law to report to potential borrowers = 11.60 %.

In excel we cal calculate the Nominal return By using NOMINAL fuction.

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