A pawn shop will lend you $100 for 10 days at a cost of $5 interest. W

QUESTION

A pawn shop will lend you $100 for 10 days at a cost of $5 interest. What is the effective rate of interest?
Lending Amount = $100 Lending period = 10 days Interest rate = 5% Effective rate of interest =? Effective Interest Rate = (1 Quoted rate / m) m 1 m = Number of times the interest is compounding m = 5% Effective Interest Rate = [1 (5% / 10)] 10 1 Effective Interest Rate = [1 (0.05 / 10)] 10 1

tive Interest Rate = [1 (0.005)] 10 1 Effective Interest Rate = [1.005] 10 1 Effective Interest Rate = 1.051140132 1 Effective Interest Rate = 0.051140132 (or) 5.11% Effective Interest Rate = 5.11%

ANSWER:

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