Vandermark Credit Corp. wants to earn an effective annual return on its consumer loans of 13.9 percent
Question:
Vandermark Credit Corp. wants to earn an effective annual return on its consumer loans of 13.9 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? Explain why this rate is misleading to an uninformed borrower.
CompoundingCompounding is the process in which an asset's earnings, from either capital gains or interest, are reinvested to generate additional earnings over time. This growth, calculated using exponential functions, occurs because the investment will...
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The reported rate is the APR so we need to convert the EAR to an ...View the full answer
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Related Book For 
Essentials of Corporate Finance
ISBN: 978-1260013955
10th edition
Authors: Stephen Ross, Randolph Westerfield, Bradford Jordan
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