Ricky Ripov’s Pawn Shop charges an interest rate of 15 percent per month on loan

Question

Ricky Ripov’s Pawn Shop charges an interest rate of 15 percent per month on loans to its customers. Like all lenders, Ricky must report an APR to consumers:

What rate should the shop report? (Round your answer as directed, but do not use rounded numbers in intermediate calculations. Enter your answer as a percent rounded to decimal places (e.g., 32.16).

What is the effective annual rate? (Round your answer as directed, but do not use rounded numbers in intermediate calculations. Enter your answer as a percent rounded to 2 decimal places (e.g., 32.16).)

Ricky Ripov’s Pawn Shop charges an interest rate of 15 percent per month on loans to its customers. Like all lenders, Ricky must report an APR to consumers:

Explanation / Answer

Annual percentage rate = 15%*12 = 180%

Effective annual rate = [(1+15%)^12]-1 = 435%

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