Response to the following problem:
Paul's Pawn shop is reevaluating the credit terms for its customers in light of a new state law that limits interest rates on secured credit (which includes pawn shop credit) to an annual percentage rate of 45% (that is, rate × number of credit periods in a year = 45%). Paul's currently has terms that require repayment of the loan plus 25% interest paid after 45 days.
a. What is the effective annual rate for Paul's customers before the change if they pay on the net day?
b. If Paul's wants to keep terms requiring payment within 45 days, what interest rate should it charge for this period to comply with the law? What is the effective annual rate on these new terms?