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    Calculating APR for Buckeye Credit Corp

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    Calculating APR. Buckeye Credit Corp. wants to earn an effective annual return on its consumer loans of 16 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.

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    Solution Preview

    Since the interest is compounding daily, we have the daily rate:
    (1+r)^365 = ...

    Solution Summary

    You will find the answer to this puzzling question inside.