A real estate agent knows that he will receive a commission of $4,250 from the sale of a property when the deal is completed 37 days from now. Needing cash today, though, he signs a discount note at a credit union, using his expected commission as the maturity value. The discount rate is 9.55%. Find the effective rate (APR).

Question

Mathematics

Juliana Rowland

20 June, 20:50

A real estate agent knows that he will receive a commission of $4,250 from the sale of a property when the deal is completed 37 days from now. Needing cash today, though, he signs a discount note at a credit union, using his expected commission as the maturity value. The discount rate is 9.55%. Find the effective rate (APR).

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Barbara Molina · Answer 1

The effective rate can be conveniently calculated from

... effective rate = r / (1-rt)

Assuming a 365 day year, this is

... = 9.55% / (1 - 0.0955 * (37/365))

... ≈ 9.64%