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Assume a lender charges an interest rate of 1
Assume a lender charges an interest rate of 1.75% per quarter. What interest rate must this lender quote on the lending arrangement?
Do not round intermediate calculations. Round the final answer to 2 decimal places.
Expert Solution
Computation of the interest rate:-
EAR = (1+rate/n)^n-1
1.75%*4 = (1+rate/4)^4-1
1+7% = (1+rate/4)^4
(1+rate/4) = (1+7%)^(1/4)
rate/4 = 1.0171 - 1
rate = 1.71% * 4
= 6.82%
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