Ricky Ripov’s Pawn Shop charges an interest rate of 13.5 percent per month on lo

Question

Ricky Ripov’s Pawn Shop charges an interest rate of 13.5 percent per month on loans to its customers. Like all lenders, Ricky must report an APR to consumers. What rate should the shop report? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Annual percentage rate ____%

What is the effective annual rate? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Effective annual rate ___%

Explanation / Answer

APR=13.5 percent per month*12months

=162%

EAR=(1+APR/m)^m-1
where m=compounding periods

=(1+0.135)^12-1

which is equal to

=357.04%(Approx).

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