Lonnie Shark’s Pawn Shop charges an interest rate of 17 percent per month on loa

Question

Lonnie Shark’s Pawn Shop charges an interest rate of 17 percent per month on loans to its customers. Like all lenders, Lonnie must report an APR to consumers.

Requirement 1: What rate should the shop report? (Round your answer as directed, but do not use rounded numbers in intermediate calculations. Enter your answer as a percent rounded to 2 decimal places (e.g., 32.16).) Annual percentage rate %

Requirement 2: What is the effective annual rate? (Round your answer as directed, but do not use rounded numbers in intermediate calculations. Enter your answer as a percent rounded to 2 decimal places (e.g., 32.16).) Effective annual rate %

Explanation / Answer

1.APR=17% per month*12 months

=204%

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

=(1+0.17)^12-1

=558.01%(Approx).

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