The Average Prime Rate (APR) is calculated by adding 3% to the federal funds target rate. It represents the average interest rate that banks charge their most creditworthy customers. Understanding the APR is crucial for borrowers to gauge the cost of loans and for investors to assess the economic environment.
The formula to calculate the Average Prime Rate (APR) is:
\[ APR = FFTR + 3\% \]
Where:
Let's say the federal funds target rate is 5.50%. Using the formula:
\[ APR = 5.50 + 3 = 8.50 \]
So, the Average Prime Rate (\( APR \)) is 8.50%.
