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24 March, 11:50

A microfinance company charges petty traders interest rate of 4 percent per month. what is the effective annual rate being charged the petty traders?

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  1. 24 March, 12:27
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    Answer

    1.04% per annum

    Explanation

    е∧ (0.04) = 1.04% per annum

    Effective Annual Rate (EAR) is the actual rate since in this case, the interest rate is being compounded on the monthly basis. Using the formula where EAR is calculated by using the mathematical value of 'e' and then putting in the monthly rate as the power of 'e', we are able to achieve the EAR.
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